By Business Insider Reporter
Zanzibar’s economy continued to demonstrate resilience at the start of 2026, supported by stable inflation, improving government revenues and steady external sector performance, according to the latest economic review by the Bank of Tanzania.
The Monthly Economic Review (MER) for February 2026 highlights continued macroeconomic stability in the semi-autonomous archipelago, reflecting prudent fiscal management and improving economic activity in key sectors such as tourism, trade and services.
Inflation remains contained
Inflation in Zanzibar remained relatively stable, reflecting moderate food prices and stable supply conditions for essential goods.
According to the report, the decline in food price pressures played a key role in maintaining price stability. Prices for several staple food items – including grains and legumes – stabilised during the period, easing pressure on household expenditure.
The moderation in inflation mirrors broader trends across Tanzania, where improved food supply and stable global commodity prices have helped contain price increases.
Stable inflation is considered critical for Zanzibar’s economy, particularly because the islands rely heavily on imports for many essential goods.
Lower inflation helps preserve purchasing power for households while supporting stable business conditions for the tourism and services sectors.
Improved government revenue
The review also points to improved fiscal performance in Zanzibar, with government revenue collections strengthening as economic activity recovers.
According to data from the President’s Office Finance and Planning Zanzibar, revenue mobilisation efforts have improved through better tax administration and enhanced compliance among businesses.
Stronger domestic revenue is helping the government finance priority spending in infrastructure, public services and social programmes without significantly increasing borrowing.
Public expenditure during the period remained focused on strategic sectors, including infrastructure development, health services and education – areas considered vital for long-term economic growth.
Tourism and trade remain economic pillars
Tourism continues to be a major pillar of Zanzibar’s economy, accounting for a large share of foreign exchange earnings and employment.
The sector has been recovering steadily following disruptions in global travel in previous years. Increased tourist arrivals have supported growth in hotels, restaurants, transport services and retail trade across the islands.
According to BoT, trade activity has also contributed significantly to economic performance, particularly through imports of consumer goods, food products and construction materials needed to support infrastructure and tourism investments.
External sector developments
Zanzibar’s external sector performance remained stable during the period under review.
Imports continued to dominate the islands’ trade structure, reflecting the economy’s dependence on imported fuel, machinery, manufactured goods and food products.
However, strong tourism receipts and service exports have helped offset the trade imbalance by generating foreign exchange earnings.
The BoT review notes that continued investment in tourism infrastructure and service industries will be essential in strengthening Zanzibar’s external sector sustainability.
Outlook
Economic analysts say Zanzibar’s economic outlook remains positive, supported by steady tourism recovery, improved fiscal management and stable macroeconomic conditions.
The islands’ strategic location in the Indian Ocean and growing reputation as a tourism destination continue to attract investors in hospitality, real estate and services.
Going forward, policymakers are expected to focus on economic diversification, strengthening domestic revenue mobilisation and improving infrastructure to support long-term growth. If these reforms continue, economists believe Zanzibar could further strengthen its role as a key contributor to Tanzania’s broader economic performance while expanding opportunities for employment and investment across the archipelago.
