Zanzibar's economy in 2025 has demonstrated robust resilience and growth, contributing significantly to Tanzania's overall economic development. As a semi-autonomous region within the United Republic of Tanzania, Zanzibar accounts for approximately 3-4% of the national GDP but plays a pivotal role in foreign exchange earnings through tourism and agriculture. According to the Bank of Tanzania's (BoT) Monthly Economic Review for November 2025, Zanzibar's GDP grew by 6.4% in the first quarter of 2025 (matching the previous year), with projections for full-year growth reaching 7.3%, driven by tourism, construction, and agriculture. This outperforms the mainland's 5.4% Q1 growth and aligns with Tanzania's national target of over 6% GDP expansion. Key enablers include stable inflation, fiscal discipline, and a surging external sector, bolstered by global tourism recovery and domestic reforms. However, challenges like cyclical commodity declines (e.g., cloves) and import pressures highlight the need for diversification. Below, we expand on the provided outline with detailed data from the BoT report, supplemented by contextual insights from recent analyses (e.g., IMF and World Bank projections for Tanzania-Zanzibar integration). Read More: Zanzibar Economy Strengthens

1. Inflation Developments

Zanzibar experienced significant easing of inflation in 2025, aligning with the Bank of Tanzania's 3-5% target and regional benchmarks under the East African Community (EAC) and Southern African Development Community (SADC). This stability supports household purchasing power, consumer spending, and broader economic confidence, contributing to Tanzania's anchored national inflation at 3.5% in October 2025. The decline reflects prudent monetary policy transmission from the mainland, adequate food supplies via inter-regional trade, and falling global energy prices, which reduced imported inflation.

1.1 Headline Inflation

Headline inflation moderated steadily through 2025, falling from 5.8% in October 2024 to 3.4% in October 2025—a cumulative easing of 41% year-over-year. Monthly inflation remained subdued at 0.1% in October 2025, unchanged from the prior year, indicating low near-term pressures.

Main drivers of the decline:

• Slowdown in food inflation: Eased to 6.4% in October 2025 from 8.2% in October 2024. This was supported by bumper harvests in staple crops (e.g., maize and rice imports from mainland Tanzania) and stable supply chains, mitigating weather risks. Food's high weight (41.9% in the CPI basket) makes this a key anchor; unprocessed food prices fell 1.6% month-on-month in October 2025.
• Drop in non-food inflation due to falling fuel prices: Plummeted to 1.0% from 4.1% in October 2024. Key factors include a 20-25% reduction in domestic petroleum prices (petrol at TZS 3,200/liter, diesel at TZS 3,400/liter by late 2025), driven by global crude oil averaging USD 70/barrel amid U.S. supply surges. This lowered transport and utilities costs, with housing/electricity/gas inflation turning negative at -3.3%.
• Additional context: Projections from BoT's October 2025 Monetary Policy Report indicate inflation will stay below 5% through year-end, aided by exchange rate stability (TZS/USD at ~2,700) and fiscal-monetary coordination. Compared to mainland Tanzania's 3.5% headline, Zanzibar's slightly higher rate reflects its import dependency, but both remain within EAC/SADC convergence (under 8%).

1.2 Inflation Table

The table below details year-on-year (YoY) and month-on-month changes, based on the July 2022=100 CPI basket. Food remains volatile but downward-trending, while energy-related categories (e.g., housing, transport) show sharp disinflation.

Source: Office of the Chief Government Statistician (Zanzibar), BoT computations. Insights: Negative monthly shifts in housing (-1.0%) and recreation (-0.5%) underscore energy and seasonal demand relief. YoY food inflation's persistence (7.1%) ties to Zanzibar's import reliance (70% of staples from mainland), but overall trends support 2025's low-risk outlook per IMF's 2025 Article IV consultation.

Chart Description (Annual Inflation Rates): A line chart tracks headline (blue, declining to 3.4%), food (red, easing to 6.4%), and non-food (green, dropping to 1.0%) from Oct 2024 to Oct 2025, highlighting the post-July 2025 disinflation phase amid harvest peaks.

2. Government Budgetary Operations (Zanzibar)

Zanzibar's fiscal operations in 2025 emphasize growth-oriented spending, with a Sh6.98 trillion annual budget (up 34.7% YoY) targeting infrastructure and social sectors. October 2025 data shows a deficit but strong domestic mobilization, reducing aid dependency and aligning with Tanzania's national fiscal consolidation (deficit at 3.5% of GDP). This supports Vision 2050 goals by channeling 65% of the budget to development, up from 24% five years ago.

2.1 Revenue Performance – October 2025

Total resources reached 84.8% of target, driven by tax buoyancy from tourism levies and trade. Non-tax underperformance reflects seasonal delays in fees/dividends.

Key insight: Tax collection is strong and remains the backbone of Zanzibar’s revenue (89% share), fueled by VAT/excise (TZS 44.7B), income tax (TZS 44.7B), and import duties (TZS 25.9B). Non-tax lags due to delayed port/airport fees. Annual domestic revenue has surged 278% over five years to Sh2.9T, per President Mwinyi's October 2025 remarks, enabling self-financed operations.

Chart Description (Chart 3.2.1: Government Resources): Bar chart compares 2024-2025 actuals: Tax on imports (25.9B), VAT/excise (44.7B), income tax (44.7B), other taxes (31.4B), non-tax (13.9B), grants (28.3B)—showing tax dominance.

2.2 Government Expenditure – October 2025

Expenditure prioritized development (52% share), financing key projects like education reforms (Sh864B allocation for 2025/26) and tourism infrastructure.

• % financed domestically: 83.6% (strong local borrowing/mobilization).
• Overall Fiscal Balance: –91.7 billion (deficit), fully financed via domestic borrowing (e.g., T-bills).

Interpretation:

• Development spending outpaced recurrent expenditure: Reflects strategic shift to capital projects (e.g., roads, energy), boosting productivity and aligning with Tanzania's 7% growth target.
• Heavy reliance on domestic financing: Indicates fiscal maturity, reducing external vulnerability; debt-to-GDP stable at ~40% per World Bank 2025 estimates.
• Broader context: Annual budget execution at 85% YTD, with education/health at 21.5% allocation, supporting human capital for tourism-led growth.

Chart Description (Government Expenditure): Stacked bars for 2024-2025: Wages/salaries (64.3B), other recurrent (99.1B), development (92.6B)—highlighting development surge.

3. External Sector Performance – Zanzibar

Zanzibar continues to record a strong current account surplus, bolstering Tanzania's national reserves (up 14.1% YoY to USD 15.7B). The surplus widened amid tourism boom, offsetting mainland deficits and funding imports/investments.

3.1 Current Account Balance

The surplus expanded 42.8%, driven by services (36.6% growth), with tourism contributing 80% of receipts.

Why the surplus increased:

• Higher tourism earnings: Service receipts up 34.3% to USD 1,531.9M, with average stay/spend rising 15-20% (USD 1,200/visitor).
• Rising exports of goods & services: 30.4% growth, led by services.
• Strong growth in tourist arrivals: +27.9% to 902,265 (September 2025 alone: +38.6% to 84,154).
• Moderate import growth (17%) vs. export growth (30.4%), narrowing goods deficit 25.9%.

4. Exports Performance (Zanzibar)

Exports surged, with tourism overtaking goods as the top earner (55% of services exports).

4.1 Total Exports of Goods & Services

Annual: +30.4% to USD 1,564.3M.

4.2 Tourism Performance

Tourism generated USD 3.92B nationally (year ending May 2025), with Zanzibar capturing ~30% of GDP contribution.

Tourism remains the dominant foreign exchange earner: Europeans (60% arrivals) and domestic travel up 20%; receipts USD 1.27B (year ending Aug 2025, +30.6%).

4.3 Clove Exports (Zanzibar’s Main Commodity)

Reason: Cyclical production decline (low harvest cycle); annual exports down 45.4% to USD 32.3M total goods, but offset by non-traditionals like spices/souvenirs.

5. Imports Performance

Imports increased moderately, reflecting investment needs but contained by surplus.

5.1 Imports of Goods & Services

Annual: +17.0% to USD 656.4M.

Drivers:

• Capital goods (+49.8% to USD 76.4M): Machinery/appliances for tourism infra (e.g., hotels).
• Consumer goods: Non-industrial transport (vehicles for services sector).
• Intermediate goods (fuel, machinery): Industrial supplies up 15%, tied to construction boom.

6. Summary Table – Zanzibar Economic Indicators (2025)

Overall Outlook: Zanzibar's 2025 performance enhances Tanzania's inclusive growth, per World Bank's FY2025-2029 CPF, by boosting FX (24% of national exports) and employment (1 in 5 jobs tourism-linked). Risks include commodity volatility, but 7.3% GDP projection signals sustained momentum.

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.

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.

1. Inflation

• Overview: Inflation in Zanzibar, measured by the Consumer Price Index (CPI), reflects the cost of living for a basket of goods and services, including food, transport, utilities, and housing. A declining inflation rate supports household purchasing power and aligns with the Bank of Tanzania’s (BoT) medium-term target of 3–5% for the United Republic of Tanzania. Zanzibar’s inflation is influenced by local factors (e.g., food supply) and external pressures (e.g., global fuel prices).
• May 2025 Performance:
  • Headline Inflation: 4.2% in May 2025, down from 4.3% in April 2025 and significantly lower than 5.3% in May 2024, reflecting a 20.8% year-on-year decline.
  • Key Components:
    • Food Inflation: 3.9% in May 2025 (down from 4.1% in April 2025, 8.9% in May 2024). The decline is driven by improved food supply, with the National Food Reserve Agency (NFRA) holding 557,228 tonnes of maize in April 2025, up from 340,102 tonnes in April 2024, and releasing 29,834 tonnes to stabilize prices.
    • Non-Food Inflation: 4.6% in May 2025 (up from 4.4% in April 2025), driven by transport (e.g., +4.8% in January 2025) and utilities, reflecting global fuel price pressures and infrastructure demand.
    • Core Inflation: 3.8% in May 2025 (unchanged from April 2025), driven by clothing, housing, and education services, indicating stable demand for non-volatile items.
• Context and Analysis:
  • Food Inflation Decline: The drop from 8.9% (May 2024) to 3.9% (May 2025) reflects improved agricultural output and NFRA intervention. Favorable rainfall patterns in 2024/25 supported crop production (e.g., maize, rice), reducing food price volatility. However, Zanzibar’s reliance on imported food (e.g., USD 521.6 million total imports in January 2025,) exposes it to global price fluctuations.
  • Non-Food Inflation Rise: The slight increase to 4.6% reflects higher transport and utility costs, linked to global fuel prices and infrastructure projects (e.g., construction up 5.8% in 2024,). Zanzibar’s tourism-driven economy increases demand for transport services, pushing costs.
  • Core Inflation Stability: The stable 3.8% core inflation indicates consistent demand for services like housing and education, supported by tourism recovery (2,662,219 arrivals in 2024,) and construction growth.
  • Economic Drivers: The BoT’s monetary policy (6% Central Bank Rate) and fiscal discipline (e.g., revenue growth,) keep inflation within the 3–5% target. However, the Tanzanian shilling’s 2.6% depreciation in 2025 raises import costs, exerting upward pressure on non-food inflation.
• Implications:
  • Positive Impact: Declining headline inflation (4.2%) enhances purchasing power, supporting consumption in a tourism-driven economy (7.1% growth,). Food inflation’s drop to 3.9% aligns with stable food stocks.
  • Challenges: Rising non-food inflation (4.6%) and shilling depreciation risk eroding gains, particularly for import-dependent Zanzibar (USD 379.8 million imports, provided data). Global fuel price volatility and La Niña-related supply disruptions pose risks.
  • Outlook: Inflation is projected to stabilize around 3.4% in 2025, supported by prudent policies and food supply stability. Continued NFRA interventions and renewable energy investments (e.g., solar,) can mitigate non-food inflation pressures.

2. Government Budgetary Operations

• Overview: Zanzibar’s government budget reflects revenue mobilization (taxes, non-tax sources, grants) and expenditure (recurrent and development). The budget supports the Zanzibar Development Vision 2050, focusing on tourism, infrastructure, and social services, but persistent deficits require external and domestic financing.
• May 2025 Performance:
  • Revenue and Grants: TZS 109.2 billion collected in May 2025, up 11.2% from May 2024.
    • Tax Revenue: TZS 99.8 billion (91.4% share):
      • VAT and Excise Duties: TZS 42.9 billion
      • Income Tax: TZS 24.0 billion
      • Import Duties: TZS 19.8 billion
      • Other Taxes: TZS 13.1 billion
    • Non-Tax Revenue: TZS 9.4 billion (8.6% share), including fees and licenses.
  • Expenditure: TZS 129.4 billion, up 6.8% from May 2024.
    • Recurrent Spending: TZS 98.8 billion, with TZS 57.3 billion for wages and salaries.
    • Development Spending: TZS 30.6 billion, supporting infrastructure and social projects.
  • Budget Deficit: TZS 20.2 billion, financed through external (e.g., Chinese grants,) and domestic borrowing.
• Context and Analysis:
  • Revenue Growth: The 11.2% increase to TZS 109.2 billion aligns with January 2025’s TZS 115.6 billion (+5.2% from December 2024,). Tax revenue (91.4%) benefits from tourism-driven VAT and import duties, with 2,662,219 tourist arrivals in 2024 boosting collections (). Non-tax revenue (8.6%) reflects improved licensing, supported by reforms to ease business regulations.
  • Expenditure Trends: Recurrent spending (TZS 98.8 billion, 76.4% of total) prioritizes wages (TZS 57.3 billion), reflecting public sector employment (e.g., education, health). Development spending (TZS 30.6 billion, 23.6%) supports infrastructure (e.g., port rehabilitation,) and aligns with 5.8% construction growth.
  • Budget Deficit: The TZS 20.2 billion deficit (down from TZS 22.3 billion in January 2025,) reflects improved revenue but persistent spending pressures. Financing includes domestic bonds (15.29% yields) and external grants (e.g., TZS 185 billion from China for health,).
  • Economic Drivers: Tourism growth (7.1%,) and trade (7.1%,) drive revenue, while infrastructure investments (e.g., Zanzibar port,) increase spending. The 2024/25 budget (TZS 1.43 trillion revenue,) targets fiscal discipline but faces a TZS 190 billion annual deficit.
• Implications:
  • Strengths: Strong revenue growth (11.2%) supports fiscal stability, with tax revenue (91.4%) reflecting tourism and trade gains. Development spending (TZS 30.6 billion) aligns with Vision 2050 priorities.
  • Challenges: The TZS 20.2 billion deficit and high recurrent spending (76.4%) limit fiscal space. Reliance on external financing (e.g., Chinese grants,) and domestic borrowing (15.5% lending rates) increases debt servicing costs.
  • Outlook: Revenue is projected to grow with tourism (6%+ growth,) and trade reforms (e.g., AfCFTA,). Fiscal discipline and expenditure controls are needed to reduce the deficit, as recommended by the World Bank.

3. External Sector Performance

• Overview: Zanzibar’s external sector reflects trade in goods (e.g., cloves, seaweed) and services (e.g., tourism), with a persistent trade deficit due to high import dependence. Tourism and clove exports are key foreign exchange earners, but global price fluctuations and production challenges impact performance.
• May 2025 Performance:
  • Exports of Goods and Services: USD 172.7 million, down 3.9% from May 2024.
    • Clove: USD 55.5 million, down 10.2% year-on-year, due to lower production and global prices.
    • Seaweeds: USD 9.8 million, up 2.1%.
    • Manufactured Goods: USD 3.7 million, up 8.6%.
    • Fish & Marine: USD 4.1 million, up 4.3%.
  • Imports: USD 379.8 million, up 10.1% from May 2024.
    • Capital Goods: USD 166.0 million, for infrastructure and manufacturing.
    • Consumer Goods: USD 134.9 million, driven by tourism and household demand.
    • Intermediate Goods: USD 78.9 million, including fuel and raw materials.
  • Trade Deficit: USD 207.1 million (USD 379.8M imports – USD 172.7M exports), widened from January 2025’s USD 387.4 million.
• Context and Analysis:
  • Export Decline: The 3.9% drop to USD 172.7 million reflects clove export challenges (USD 55.5 million, -10.2%), due to production fluctuations (down from USD 46.8 million in January 2025,) and global price declines. Seaweed (+2.1%), manufactured goods (+8.6%), and fish (+4.3%) show resilience, supported by export zones and processing reforms. Tourism receipts, included in services, bolster exports (USD 3,910 million nationally,).
  • Import Growth: The 10.1% rise to USD 379.8 million aligns with January 2025’s USD 521.6 million (+4.5%,). Capital goods (USD 166.0 million) support construction (5.8% growth,) and manufacturing (7% in Zanzibar,). Consumer goods (USD 134.9 million) reflect tourism demand, while intermediate goods (USD 78.9 million) include fuel, impacted by global prices.
  • Trade Deficit: The USD 207.1 million deficit, though narrower than January 2025’s USD 387.4 million, reflects import dependence. Tourism and remittances (USD 589.1 million nationally,) offset some losses, supported by reserves (USD 5,136.6 million).
  • Economic Drivers: Tourism (7.1% growth,) and infrastructure (e.g., port upgrades,) drive imports, while clove production volatility and global demand weaken exports. AfCFTA and trade agreements (e.g., Tanzania-Mozambique,) support export growth.
• Implications:
  • Strengths: Growth in seaweed, manufactured goods, and fish exports diversifies earnings. Tourism receipts (55.1% of national service exports,) and reserves (4.2 months import cover) ensure stability.tanzaniainvest.com
  • Challenges: Clove export decline (-10.2%) and high import growth (10.1%) widen the trade deficit, exacerbated by shilling depreciation (2.6%, Document, Page 12). Import reliance (USD 379.8 million) risks external vulnerabilities.
  • Outlook: Export diversification (e.g., manufacturing,) and tourism growth (6%+ in 2025,) can narrow the deficit. Investments in agriculture (e.g., seaweed,) and renewable energy will reduce import dependence.

Additional Insights and Outlook

• Economic Context: Zanzibar’s economy grew 6.2% in 2024, driven by tourism (7.1%) and construction (5.8%), with 2025 projections over 6%. Inflation (4.2%) and revenue growth (TZS 109.2 billion) support stability, but the trade deficit (USD 207.1 million) and budget deficit (TZS 20.2 billion) pose challenges.
• Policy Support: The BoT’s 6% CBR and fiscal reforms (e.g., VAT efficiency,) stabilize inflation and revenue. Chinese grants (TZS 185 billion,) and World Bank support (CPF 2025-2029,) fund infrastructure, reducing deficit pressures.
• Risks: Shilling depreciation (2.6%, Document, Page 12), global price volatility, and climate shocks (e.g., La Niña,) threaten inflation and trade. Overreliance on tourism and cloves risks external shocks.
• Outlook: Zanzibar’s 2025 growth (6%+) will rely on tourism, manufacturing, and trade reforms (e.g., AfCFTA,). Diversifying exports and reducing import reliance (e.g., via agriculture,) are critical for sustainability.

Zanzibar Economic Performance - May 2025: Key Figures

Note: USD conversion based on exchange rate of ~TZS 2,698/USD.