Tanzania Investment and Consultant Group Ltd

| Economic Research Centre

Zanzibar's economy demonstrated resilience in November 2024
January 13, 2025  
Stability and Growth in Focus Zanzibar's economy demonstrated resilience in November 2024, with headline inflation dropping to 4.5%, reflecting stable food prices and currency strength. Government revenues reached TZS 180 billion, with tax collections surpassing targets by 8.2%, while development spending accounted for 52% of total expenditures. A current account surplus of USD 500.7 million, […]

Stability and Growth in Focus

Zanzibar's economy demonstrated resilience in November 2024, with headline inflation dropping to 4.5%, reflecting stable food prices and currency strength. Government revenues reached TZS 180 billion, with tax collections surpassing targets by 8.2%, while development spending accounted for 52% of total expenditures. A current account surplus of USD 500.7 million, driven by strong tourism and export performance, highlights the region’s economic potential. Despite a fiscal deficit of TZS 3.3 billion, Zanzibar continues to prioritize growth through strategic investments and fiscal discipline.

Economic Performance in Zanzibar (November 2024)

1. Inflation Trends

  • Headline Inflation: Decreased to 4.5% in November 2024, from 5.8% in October 2024 and 6.3% in November 2023.
    • The decline was driven by slower increases in food prices and an appreciating Tanzanian shilling, which reduced import costs.
  • Food Inflation: Dropped to 6.6% in November 2024, down from 8.2% in October 2024 and 10.9% in November 2023.
  • Non-Food Inflation: Stood at 3%, a reduction from 4.1% in October 2024 and stable compared to November 2023.

2. Government Budgetary Operations

Revenues and Grants:

  • Total government revenue and grants reached TZS 180 billion, with:
    • Domestic Revenue: TZS 138.2 billion (94.6% of target).
    • Grants: TZS 41.7 billion.
    • Tax Revenue: TZS 124.2 billion, exceeding the target by 8.2%, due to improved tax enforcement and compliance.
    • Non-Tax Revenue: TZS 14 billion (44.7% of the target).

Expenditure:

  • Total expenditure amounted to TZS 155.4 billion:
    • Recurrent Expenditure: TZS 74.8 billion, allocated to wages, salaries, and operational costs.
    • Development Expenditure: TZS 80.6 billion, primarily funded by domestic sources (TZS 62.7 billion) and supplemented by foreign financing.

Fiscal Deficit:

  • Zanzibar recorded a fiscal deficit of TZS 3.3 billion, which was financed through external borrowing.

3. External Sector Performance

  • Current Account Balance: Surplus of USD 500.7 million for the year ending November 2024, up from USD 360.3 million in November 2023.
  • Exports of Goods and Services:
    • Improved performance, especially in tourism, contributed significantly to the surplus.
  • Imports of Goods and Services:
    • Decreased, further supporting the positive current account position.

Key Insights:

  1. Declining Inflation: Reflects stability in food prices and effective currency management, benefiting households and businesses alike.
  2. Revenue Mobilization Success: Tax revenue exceeded targets, showcasing improved enforcement and taxpayer compliance.
  3. Development Priorities: Significant allocation to development spending underlines a commitment to infrastructure and socio-economic growth.
  4. Trade and Tourism Boost: Strong performance in the external sector, particularly in tourism, highlights Zanzibar’s growing economic potential.

The analysis of Zanzibar's economic performance with several important insights into the region's fiscal and economic health

1. Declining Inflation Reflects Economic Stability

  • The drop in headline inflation to 4.5% indicates stable prices for essential goods, benefiting consumers.
  • The reduction in food inflation to 6.6% reflects improved food supply and a stronger currency, reducing import costs.

Implication: Zanzibar’s inflation trends signal effective price control mechanisms, stable economic conditions, and reduced pressure on household purchasing power.

2. Strong Revenue Mobilization

  • Tax revenue exceeding targets by 8.2% highlights the government’s improved enforcement and taxpayer compliance.
  • However, the shortfall in non-tax revenue (44.7% of the target) suggests areas for improvement in diversifying revenue sources.

Implication: Zanzibar’s fiscal system demonstrates strengths in tax mobilization but needs to enhance efficiency in collecting non-tax revenues to reduce reliance on external financing.

3. Prioritization of Development Spending

  • Development expenditure accounted for more than half (52%) of total spending, with domestic financing (TZS 62.7 billion) playing a significant role.
  • Investments in infrastructure and social programs align with long-term growth objectives.

Implication: The focus on development spending reflects a commitment to building infrastructure and improving public services, but the reliance on domestic and foreign funding underscores the need for effective project management to ensure returns.

4. Improved External Sector Performance

  • The current account surplus of USD 500.7 million reflects strong export performance, especially in tourism and reduced imports.
  • Growth in tourism receipts underscores the sector’s vital role in Zanzibar’s economy, driven by increased tourist arrivals.

Implication: The external sector performance highlights Zanzibar’s success in leveraging its comparative advantages, particularly in tourism, while maintaining control over imports.

5. Fiscal Deficit and Financing

  • The fiscal deficit of TZS 3.3 billion demonstrates the challenges of balancing revenues and expenditures.
  • Financing through external borrowing requires careful management to avoid over-reliance and maintain debt sustainability.

Implication: Zanzibar’s fiscal health is stable but demands continued efforts in expanding domestic revenue and prudent debt management.

Conclusion:

Zanzibar’s economic performance reflects positive trends in inflation control, revenue mobilization, and trade, driven by tourism and development spending. However, the reliance on external borrowing and the underperformance of non-tax revenue highlight the need for diversified revenue sources, enhanced fiscal discipline, and productive investments to sustain long-term economic growth.

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