Inflation Eases to 3.5%, Current Account Surplus Up 34.7% (September 2025)

Zanzibar’s economic performance in September 2025 reflects solid recovery momentum supported by easing inflation (down to 3.5% from 3.9%), strong revenue mobilization, and an expanded current account surplus rising to USD 836.6 million (+34.7%). The external sector continued to benefit from robust tourism activity, with travel receipts jumping by 36.4% amid increased arrivals (+28.2%). Development expenditure dominated the TZS 420.1 billion budget (60%), signaling strategic investment in infrastructure and social services, while strong domestic financing (78.4% coverage) reinforced fiscal sustainability. Exports grew significantly to USD 1,473.9 million (+27.3%), driven overwhelmingly by services, despite a sharp 76% fall in clove exports due to seasonal cycles. Imports also rose moderately (+18.9%) to USD 658.4 million, largely reflecting higher capital goods inflows (+84.7%), indicating continued investment activity. Overall, Zanzibar’s growth remains anchored in tourism, supported by stable price trends, improved fiscal discipline, and strong external sector performance—though diversification remains essential to reduce vulnerability to single-sector shocks.

1. Overview of Zanzibar Economic Performance

Zanzibar’s economy showed moderate improvement supported mainly by:

• A decline in inflation
• Stronger revenue performance
• Improved external sector (current account surplus)

2. Inflation Performance in Zanzibar

Headline Inflation (Year ending September 2025)

Source: Inflation table under Zanzibar section

Notes

• Inflation pressures eased mainly due to improved supply conditions.
• Declines were broad-based across categories such as:
  • Restaurant and Accommodation services
  • Transport
  • Education
  • Personal care and miscellaneous services

3. Government Budgetary Operations (Zanzibar)

Expenditure — September 2025

Source: Government operations chart and narrative

Interpretation

• Development spending dominates, indicating capital-focused fiscal policy.
• High reliance on domestic resources strengthens fiscal sustainability.

4. Zanzibar External Sector Performance

Key Indicators

Drivers of Improvement

Higher tourism receipts (+36.4%)
Increased arrivals (885,385 visitors, +28.2%)
Stronger exports of services

5. Detailed Breakdown — Zanzibar Exports

Exports of Goods and Services (Year ending September 2025)

* previous value referenced from narrative (crop cycle impact)

Tourism was the standout performer.

6. Imports Breakdown — Zanzibar

Imports of Goods and Services

7. Summary Table — Zanzibar Economic Indicators

Implications of Zanzibar's Economic Performance

Zanzibar's economic indicators for September 2025, as outlined in Section 3.0 (Economic Performance in Zanzibar) of the Bank of Tanzania's (BOT) Monthly Economic Review (October 2025), depict a resilient semi-autonomous economy buoyed by tourism recovery and fiscal discipline. Headline inflation eased to 3.5% (from 3.9% in 2024), budgetary operations showed strong development focus (TZS 250.1 billion, 60% of total TZS 420.1 billion expenditure), and the external sector expanded with a USD 836.6 million current account (CA) surplus (+34.7% y/y), driven by travel receipts (USD 1,503.9 million, +36.4%). This performance mirrors mainland trends—6.3% Q2 GDP growth, 3.4% inflation—but highlights Zanzibar's tourism dependence amid clove export declines (-76%). Below, I analyze implications across core areas, drawing synergies with national dynamics like shilling appreciation (+9.4% y/y) and accommodative policy (CBR 5.75%).

1. Inflation Developments: Broad-Based Easing Supports Household Stability

• Headline at 3.5% (Down from 3.9%; Food 4.1%, Non-Food 2.9%): The decline reflects improved supply chains (e.g., domestic agriculture aiding food moderation) and global commodity relief (oil down), with broad easing in services like restaurants/accommodation (tourism-linked), transport, education, and personal care. This aligns with mainland's 3.4% stability, within shared 3–5% target and EAC/SADC criteria.
• Broader Implications:
  • Positive: Lowers living costs, boosting disposable income for tourism-dependent households and sustaining arrivals (885,385 visitors, +28.2%). Enhances real returns on savings amid positive deposit rates (~6.4% real; prior analysis), supporting consumption-led growth.
  • Risks: Food's relative stickiness (4.1%) exposes to supply shocks (e.g., mainland rice/maize pressures), potentially spilling via inter-island trade. Non-food drop (2.9%) ties to import affordability from shilling strength, but global rebounds could reverse gains.

2. Government Budgetary Operations: Development-Led Fiscal Expansion

• Total Expenditure TZS 420.1B (Recurrent TZS 170B/40%, Development TZS 250.1B/60%): Strong domestic revenue/grants (TZS 240.2B) covered 78.4% financing, yielding a TZS 180B deficit via local borrowing (e.g., securities). Emphasis on capital outlays prioritizes infrastructure/tourism enhancements, echoing mainland's 71.9% execution.
• Broader Implications:
  • Positive: Capital bias (~60%) fosters long-term multipliers (e.g., transport/energy for visitor access), aligning with CA surplus drivers. Domestic-heavy financing reduces FX risks (vs. mainland's 70.6% external debt), enhancing sustainability amid low yields (T-bills 6.03%).
  • Risks: Deficit reliance on borrowing could pressure local rates if mainland liquidity tightens (IBCM +37.4% but short-tenor heavy). Execution delays (common nationally) might hinder tourism infra, amplifying clove-like sectoral slumps.

3. External Sector Performance: Tourism-Fueled Surplus Amid Import Pressures

• CA Surplus USD 836.6M (+34.7% from USD 621.2M); Exports USD 1,473.9M (+27.3%), Imports USD 658.4M (+18.9%): Tourism dominated (USD 1,503.9M receipts, +36.4%; arrivals +28.2%), offsetting clove drops (USD 6.3M, -76% due to crop cycles). Imports rose moderately, led by capital goods (+84.7%, USD 73.6M for non-industrial equipment) and consumer items, signaling investment.
• Broader Implications:
  • Positive: Surplus buffers reserves (national 5.8 months cover), supporting shilling stability and import cost relief (energy inflation 3.7%). Tourism synergy with mainland exports (e.g., gold/cereals) diversifies inflows, aiding 6% national growth projection.
  • Risks: Clove decline underscores commodity vulnerability (mirroring mainland food stocks buildup), while import growth (if unchecked) could erode surplus if tourism falters (e.g., global protectionism). Heavy service reliance (travel ~102% of exports) exposes to shocks like pandemics or geopolitics.

4. Interlinkages: Tourism as Growth Anchor with National Spillovers

• Synergies with Mainland: Zanzibar's inflation easing (3.5%) complements national 3.4%, via shared supply chains (e.g., NFRA aiding food) and monetary policy (interbank 6.45%; Section 2.5). Tourism inflows bolster FX (BOT USD 11M intervention), while development spend ties to national infra (e.g., energy for reliable power).
• Fiscal-External Ties: Surplus finances deficit sustainably, reducing debt reliance (national 40.1% GDP) and supporting private credit (16.1% y/y).
• Broader Implications:
  • Positive: Positions Zanzibar as a national growth pole (tourism +28.2% arrivals vs. mainland mining/agri), enhancing EAC integration (convergence met).
  • Risks: Over-dependence on tourism/cloves amplifies external shocks (e.g., oil volatility), potentially widening inter-regional disparities if mainland exports soften.

5. Macroeconomic Context from the Review

• Alignment: Mirrors resilient outlook (IMF 3.2% global growth), with tourism offsetting clove dips like mainland's mixed commodities. Projections: Stable inflation (3–5%), sustained surplus via services.
• Outlook: Favorable for 2026 if diversification advances (e.g., via capital imports), but monitor global demand.

In conclusion, September 2025's data imply a tourism-propelled Zanzibar economy with stabilizing prices and external strength, complementing national momentum for balanced union growth. While development spending and surplus signal sustainability, mitigating tourism/clove risks through diversification is vital for enduring resilience amid global headwinds.

In October 2024, Zanzibar's economy demonstrated resilience, showing strong fiscal performance, improved external trade, and effective management of inflationary pressures. While inflation rose moderately, the government exceeded revenue targets, and external sector performance strengthened with an increasing current account surplus and robust exports. Despite some challenges, Zanzibar's economy remains on a positive trajectory, with strategic fiscal management and growing export potential.

1. Inflation Analysis

In October 2024, Zanzibar's inflation showed an upward trend in comparison to the previous month but remained lower than the same period in 2023.

• Headline Inflation:
  • 5.8% (up from 4.8% in September 2024)
  • Lower than 6.5% in October 2023.
• Inflation Components:
  • Non-food Inflation:
    • 4.1% (up from 2.8% in September).
    • The increase is mainly driven by rising kerosene and petrol prices.
  • Food Inflation:
    • 8.2% (up from 7.3% in September).
    • Key contributors:
      • Fish: Rising demand and supply constraints.
      • Jasmine Rice: Price increases linked to global supply and domestic production challenges.
      • Edible Cooking Oil: Price hikes caused by supply chain disruptions.
  • Month-to-Month Inflation:
    • 0.1% (compared to -0.9% in October 2023), indicating slight price increases in the short term.

2. Government Budgetary Operations

The government’s budget performance in October 2024 reflected strong revenue generation, but also substantial expenditure.

• Total Revenue and Grants:
  • TZS 158.3 billion (domestic revenue: TZS 143.2 billion, exceeding the target by 1.9%).
• Tax Revenue:
  • Total Tax Revenue:
    • TZS 129.3 billion (exceeded target by 4.8%).
  • Key Components:
    • Tax on Imports: TZS 25.9 billion.
    • VAT and Excise Duties: TZS 44.7 billion.
    • Income Tax: TZS 27.4 billion.
    • Other Taxes: TZS 31.4 billion.
• Non-Tax Revenue:
  • TZS 13.9 billion (81.3% of the target).
• Government Expenditure:
  • Total Expenditure: TZS 283.1 billion.
    • Recurrent Expenditure: TZS 163.5 billion.
    • Development Expenditure: TZS 119.6 billion.
      • Local Financing: TZS 68.1 billion.
      • Foreign Resources: The remaining balance.

3. External Sector Performance

Zanzibar’s external sector exhibited a positive trend, with an increase in the current account surplus and stronger export performance.

• Current Account:
  • The current account remained in surplus.
  • It increased to USD 520.4 million (up from USD 335.8 million), showing stronger economic health.
• Exports:
  • Total Goods and Services:
    • USD 1,077.3 million (up from USD 972.1 million), driven by various sectors, particularly tourism.
  • Cloves Exports:
    • USD 22.1 million (declined by 18.6% due to cyclical nature of production).
  • Monthly Exports (October 2024):
    • USD 110.1 million (up from USD 84.4 million).
• Imports:
  • Total Imports:
    • Declined by 11.3% to USD 575.4 million.
  • Capital Goods:
    • Decreased to USD 51 million (from USD 79.6 million), possibly due to reduced infrastructure and machinery purchases.
  • Monthly Imports (October 2024):
    • USD 70.6 million.

4. Key Economic Indicators

• Revenue Performance: Strong revenue generation, particularly from taxes.
• Expenditure Management: The government efficiently managed its recurrent and development expenditures.
• External Sector Performance: Improving trade balance with a positive current account surplus and increasing exports.
• Inflation Pressures: Moderate inflation driven by food and fuel prices, manageable within the overall context.
• Fiscal Balance: Zanzibar has balanced fiscal operations with strong revenue and controlled expenditures.

Overall Economic Performance

• Fiscal Management:
  Improved fiscal management, with the government meeting and exceeding its revenue targets and allocating strategic resources.
• External Position:
  Strong external sector performance, with a positive current account surplus and improving export performance. However, imports have declined, particularly in capital goods.
• Inflation Management:
  Inflation remains at a manageable level, with moderate pressures mainly from food prices and energy costs.
• Revenue and Expenditure:
  Effective revenue collection and strategic expenditure allocation, supporting both recurrent and development needs.
• Tourism and Export Growth:
  The tourism sector continues to be a major contributor, with export growth in goods and services.
• Declining Import Dependency:
  The decline in imports, especially capital goods, suggests a shift towards local production or more efficient use of foreign resources.

In summary, Zanzibar's economy shows resilience with improving fiscal and external sector performance, despite facing some inflationary pressures. The strong performance in revenue collection and controlled expenditure management indicates a solid foundation for continued economic growth.

Zanzibar's economic performance in October 2024 with key insights:

1. Moderate Inflation Pressures:
   Inflation has risen, but the overall increase is moderate (5.8% in October 2024 compared to 4.8% in September). The rise in food inflation, driven by increased prices of fish, rice, and cooking oil, and the rise in non-food inflation due to higher kerosene and petrol prices, indicate inflationary pressures. However, the month-to-month inflation rate is positive at 0.1%, suggesting that the inflation increase is gradual and not an immediate crisis.
2. Strong Revenue Performance:
   Zanzibar has exceeded its revenue targets, with tax revenue surpassing expectations by 4.8%. Key contributors to this performance include taxes on imports, VAT and excise duties, and income taxes. This indicates a robust tax collection system and strong economic activity, which is helping to support the government’s fiscal health.
3. Effective Expenditure Management:
   Despite the strong revenue performance, the government has managed its expenditures well. The government’s total expenditure is substantial at TZS 283.1 billion, but it is well-managed, with clear allocations for recurrent spending and development projects. Local financing of development expenditure is notably high, suggesting efforts to support projects without overly relying on foreign loans.
4. Improving External Sector:
   Zanzibar's external sector has improved, with the current account surplus increasing significantly (from USD 335.8 million to USD 520.4 million). The growth in exports, particularly in goods and services (from USD 972.1 million to USD 1,077.3 million), shows that Zanzibar is improving its trade balance and increasing its foreign earnings. The decline in imports, particularly in capital goods, could suggest a reduction in dependency on foreign goods, which is a positive sign of local production capacity or shifting priorities.
5. Resilient Economic Position:
   Overall, Zanzibar’s economy demonstrates resilience. Despite inflationary pressures, it is maintaining strong fiscal performance, with effective revenue collection, strategic expenditure allocation, and a positive external position. The tourism sector continues to be a strong driver of exports, contributing to overall economic growth.
6. Declining Import Dependency:
   A decrease in imports, especially capital goods, might indicate a move toward local production or more efficient utilization of foreign resources, which would reduce dependency on foreign imports in the long term.

Key Takeaways:

• Zanzibar's economy is on a positive trajectory with improving fiscal health, growing external reserves, and effective management of inflation.
• The revenue performance is strong, and the government's expenditure is well-targeted, with an emphasis on sustainable development and local financing.
• External trade is improving, with a stronger export performance and a current account surplus, though the import decline indicates a shift toward reducing dependency on foreign goods.
• Inflation, although moderate, poses some risks, primarily from food and fuel prices, which will need to be managed carefully.

Overall, Zanzibar's economy is stable and growing, with effective fiscal policies and an improving external sector, though managing inflation and ensuring sustainable import-export balances will be key to continued prosperity.