Zanzibar's economic performance in August 2025, as detailed in the Bank of Tanzania's Monthly Economic Review (September 2025), reflects sustained momentum driven by tourism recovery, clove exports, and fiscal investments, contributing to Tanzania's overall Q3 growth estimate above 6%. With headline inflation easing to 5.8% (within moderate bounds), revenues up 3.8% YoY, and service receipts surging 30.6% year-to-date to USD 1,267.5 million, Zanzibar's semi-autonomous economy bolsters national forex inflows and diversification. Projections indicate 6.5% GDP growth for Zanzibar in 2025, outpacing mainland Tanzania's 6.0% and fueled by public infrastructure spending, tourism (now the top earner), and manufacturing. This semi-autonomous region's stability—despite a widening trade deficit—enhances Tanzania's external buffers (current account deficit narrowed 33% nationally) and supports Vision 2050 goals for inclusive growth, with tourism generating rural jobs amid 5.5% national unemployment. However, persistent deficits and recurrent spending (73% of outlays) highlight needs for export diversification beyond cloves and tourism to mitigate global risks like oil volatility.

World Bank and IMF outlooks affirm Zanzibar's role in Tanzania's 6-7% medium-term trajectory, with tourism's multiplier effects (e.g., 9.3% services export growth) aiding poverty reduction in coastal areas.

1. General Overview

Zanzibar’s economy continued to perform strongly in 2025, driven by tourism, services, and clove exports. Both revenue collection and imports improved compared to the previous year.

2. Government Budgetary Operations

The budget deficit widened slightly due to higher recurrent and development spending, though revenues performed above expectations.

3. External Sector (Trade Performance)

Zanzibar’s trade deficit persisted but was cushioned by growing tourism receipts and higher export earnings from cloves.

4. Inflation and Prices

Zanzibar experienced lower inflation in August 2025, driven by improved domestic supply and reduced import costs.

5. Key Economic Indicators – Summary Table

Implications for Tanzania's Economic Development

1. Production: Tourism and Export-Led Expansion Amid Sectoral Resilience

• Key Observations Recap: Economy driven by tourism, services, and cloves; no explicit August production data, but implied via 10.3% export growth (cloves +10.9%, manufactured goods +10.7%).
• Implications for Economic Development:
  • Sectoral Diversification and Job Creation: Cloves (USD 7.1 million, 41% of goods exports) and manufacturing (USD 3.1 million) signal agricultural and industrial maturation, supporting national ag credit growth (30.1%). Tourism's 9.3% rise (USD 7.0 million) aligns with 30.6% year-to-date service receipts, generating ~200,000 jobs in hospitality and spillovers to mainland trade. This cushions mainland vulnerabilities, contributing 6.5% to Zanzibar's projected growth.
  • Infrastructure Synergies: Production ties to development spending (TZS 41.8 billion, +7.9%), funding ports and roads that enhance national logistics, per SECO's emphasis on public investments driving 6.7% 2026 growth.
  • Risks: Clove price dependence (weather-sensitive) could amplify food inflation if harvests falter, mirroring mainland trends (7.7%).

2. Prices (Inflation): Easing Pressures Foster Consumption Stability

• Key Observations Recap: Headline 5.8% (-1.1 pp YoY), food 5.9% (-1.5 pp), non-food 5.7% (-0.3 pp), due to stable supplies and lower imports.
• Implications for Economic Development:
  • Anchored Household Spending: Declining food inflation (from improved local supply) aligns with mainland's 3.4% rate, boosting consumption (62.8% of inflation basket) and supporting tourism's labor-intensive growth. This stability aids national monetary easing (CBR 5.75%), per BoT's policy statement.
  • Import Cost Relief: Reduced fuel/housing pressures (tied to global oil easing) lower production costs for cloves/manufacturing, enhancing competitiveness in EAC markets.
  • Risks: If global fertilizers remain elevated (Chart 1.5), clove/ag costs could reverse gains, pressuring 5-7% SADC convergence.

3. Fiscal Operations: Revenue Resilience Funds Growth Investments

• Key Observations Recap: Revenues TZS 106.3 billion (+3.8% YoY, 99.5 billion domestic); expenditures TZS 155.6 billion (+6.2%), deficit TZS 49.3 billion; recurrent TZS 113.8 billion (73%), development TZS 41.8 billion.
• Implications for Economic Development:
  • Pro-Growth Spending Allocation: Above-target revenues (VAT/import duties) finance 7.9% development rise, targeting education/infrastructure that amplifies tourism (e.g., airport expansions) and national connectivity. Grants (+7.9%) from partners enhance fiscal space, supporting 6.5% growth.
  • Deficit Management: Widened gap (financed domestically) remains sustainable (~4-5% GDP), mirroring mainland's 4.5%, and cushions trade imbalances via loans.
  • Risks: Recurrent dominance (wages/goods) risks efficiency losses; diversification beyond taxes needed for 16.5% GDP revenue target.

4. Trade (External Sector): Deficit Cushioned by Services Boom

• Key Observations Recap: Exports USD 17.2 million (+10.3%), imports USD 92.8 million (+6.1%), balance -USD 75.6 million (widened from -71.9 million).
• Implications for Economic Development:
  • Forex Inflow Acceleration: Tourism/cloves growth narrows effective deficits, with services offsetting goods imports (oil/food). This bolsters national reserves (USD 6.2 billion), per BoT, and supports TZS stability (appreciation 6.6%).
  • Trade Diversification: +10.7% manufactured exports signals value-addition, aiding EAC integration and mainland manufacturing synergies.
  • Risks: Import reliance (construction materials) exposes to global prices; surplus in services (USD 13.9 million implied) vulnerable to tourism slumps.

Overall Summary and Forward Outlook

Zanzibar's August metrics imply a complementary growth engine for Tanzania: easing inflation and fiscal prudence sustain 6.5% expansion, with tourism/cloves inflows mitigating deficits and amplifying national 6%+ trajectory. This fosters inter-regional synergies, e.g., tourism's forex aiding mainland ag/mining. By Q4 2025, sustained trends could yield 6.7% growth, but enhancing clove processing and non-oil imports will counter risks like global uncertainties (Chart 1.1a). Reforms for fiscal efficiency and trade balances position Zanzibar as a tourism hub, unlocking 7% national potential.