Beyond Allocations: What Zanzibar’s 2026/27 Budget Reveals About Fiscal Space for Health

On the other hand, this increase is occurring within a much larger and more constrained fiscal picture. The health allocation represents approximately 5% of the total budget and competes with major spending pressures from infrastructure, debt servicing, education, and other social sectors.

These trade-offs in budget allocation are occurring in a context where Zanzibar is simultaneously expanding its health insurance scheme, managing a structural decline in external financing, and carrying a public debt stock on an upward trajectory, all while operating on a tourism-dependent revenue base.

The 2026/27 budget, therefore, offers an important lens for examining the future of health financing in Zanzibar and the broader challenge facing small island and sub-national economies across the continent as they navigate similar transitions.

A Growing Health Budget in a Constrained Fiscal Environment

The overall budget for 2026/27 stands at TZS 8.52 trillion (USD 3.25 billion), a 22.1% increase from the TZS 6.98 trillion (USD 2.66 billion) estimate for 2025/26. Domestic tax revenues are projected at approximately TZS 2.87 trillion (USD 1.09 billion), accounting for 34% of the total budget. Including non-tax revenues, total domestic resources reach TZS 3.25 trillion (USD 1.24 billion), or 38% of the budget. The remaining 62% is financed through domestic loans of TZS 3.40 trillion (USD 1.30 billion) and external grants and loans of TZS 1.51 trillion (USD 575.2 million).

Zanzibar’s public debt has reached TZS 3.00 trillion (USD 1.14 billion) equivalent to 40.63% of GDP, below the 55% threshold considered sustainable for small and medium-sized economies. Debt service already consumed TZS 292.96 billion (USD 111.6 million) in domestic interest payments in 2026/27. Debt service already consumed TZS 292.96 billion (USD 111.6 million) in domestic interest payments in 2026/27, and total recurrent expenditure accounted for 32.1% of the budget before any development spending was allocated.

Considering this macroeconomic context, we examine how much room the government has to increase and sustain health investments without undermining fiscal stability. The central question is whether domestic revenue can grow fast enough to reduce dependence on debt, absorb declining external financing, and sustain health investment simultaneously, all within a budget that is already stretched.

Is Health Gaining Priority?

The 10.3% nominal increase in the Ministry of Health allocation — from TZS 368.2 billion (USD 140.3 million) to TZS 405.9 billion (USD 154.6 million) — signals continued commitment, but the budget-share shows a declining trend. Because the total budget grew by 22.1% while health grew by 10.3%, health’s share of the total budget has declined from 5.27% in 2025/26 to 4.76% in 2026/27. That contraction in relative priority is more visible when set against comparator allocations such as education infrastructure which received TZS 666.1 billion (USD 253.8 million) — 7.81% of the total budget. Domestic debt interest payments of TZS 292.96 billion (USD 111.6 million) consume an amount equivalent to 72% of the entire health allocation. This trajectory in which health is not keeping pace with the government’s broader fiscal expansion could widen the gap between health system demand and available resources unless it is reversed.

Within the health envelope itself, the allocation of 34.8% — TZS 141.1 billion (USD 53.8 million) — to prevention and health education covering HIV, TB, malaria, maternal and child health, nutrition, and community-level services reflects strong health financing strategy. Investment in community health workers, disease surveillance, maternal care, and immunisation generates compounding returns by reducing avoidable hospitalisations and the long-run cost burden on referral facilities.

At the same time, Zanzibar faces intensifying demand for healthcare services driven by population growth, the rising burden of non-communicable diseases, and the ongoing development of the Zanzibar Health Services Fund. Government resources are being stretched across competing priorities within an envelope that is growing in nominal terms but remains constrained by its financing composition.

Within this context, the health allocation reflects both commitment and constraint. The challenge goes beyond sustaining current spending levels to ensuring that financing grows at a pace capable of supporting expanding coverage, absorbing declining donor revenues, and building the long-run system resilience that Zanzibar’s health ambitions require.

The ZHSF Sustainability Test

The Zanzibar Health Services Fund remains the most consequential domestic health financing mechanism on the islands, and the 2026/27 budget shows the current trajectory. At its core, the ZHSF seeks to expand financial protection, reduce out-of-pocket spending, and advance Zanzibar toward universal health coverage.

The budget demonstrates the government’s continued commitment to this objective — the TZS 40.15 billion (USD 15.3 million) transfer to the Fund reflects a deliberate decision to keep the scheme solvent and operational. However, the long-term success of the ZHSF will depend on more than annual government transfers. In 2025/26, the Fund collected TZS 48.04 billion (USD 18.3 million) against a target of TZS 61.43 billion (USD 23.4 million) — 78% of its annual target — while requiring the additional TZS 40.15 billion (USD 15.3 million) in transfers to cover service provider payments. Premium collection at 78% of the target reflects persistent enrolment and compliance challenges among informal sector workers and subsistence households, a structural feature of community health insurance in economies with large informal sectors. At current premium levels and enrolment rates, the ZHSF functions as a co-financing arrangement in which government transfers are structurally indispensable, meaning the government’s own fiscal position and the Fund’s coverage capacity are directly linked.

As enrolment expands, the disease burden shifts toward more costly non-communicable diseases, and the government transfers that currently underpin the scheme face competition from growing debt service obligations, policy makers will need to interrogate how Zanzibar can build the fiscal and institutional conditions necessary to sustain the Fund over the medium term.

The Donor Transition Challenge

One of the most consequential themes emerging from Zanzibar’s 2026/27 budget is the intersection between donor transition and health system continuity. The breadth of health sector partners acknowledged in the Ministry’s budget speech — spanning the World Bank, Global Fund, GAVI, CDC, GIZ, UNICEF, UNFPA, BADEA, and fifteen bilateral governments — reflects relationships that finance the structural continuity of hospital construction, disease programme delivery, and the development pipeline.

Although external grants and loans account for approximately 17% of the total budget, their importance is larger than the headline share suggests. In the health sector, external financing is embedded in delivery systems, infrastructure, supply chains, and programme continuity.

In 2025/26, development partner disbursements reached only 64% of the TZS 1.44 trillion annual target. Grants reached 62% of target, while sectoral loans reached 59%. This underperformance contributed to the 38% development budget execution rate observed in the health sector by March 2026.

The 2026/27 budget projects TZS 1.51 trillion, approximately USD 575.2 million, in external financing. This is higher than the previous year’s target, even though the prior target was materially missed. That projection introduces downside risk into a budget with limited capacity to absorb shortfalls.

The key question is whether domestic financing can expand at a pace sufficient to absorb programmes historically supported by external partners. This includes not only disease-specific interventions, but also health workers, supply chains, facility construction, service delivery systems, and other system-level functions that donor financing has helped underwrite.

Health as an Economic Investment

The Compulsory Travel Insurance scheme is the clearest demonstration that health and economic development in Zanzibar are fiscally interdependent. Generating TZS 76.28 billion (USD 29.1 million) in nine months and directing TZS 27.21 billion (USD 10.4 million) to the Health Sector Development Fund, the scheme converts visitor arrivals directly into health investment. It is an instrument that simultaneously finances health services, protects visitors against medical emergencies, and strengthens Zanzibar’s positioning as a safe and well-governed tourism destination. Visitor confidence in health infrastructure is a determinant of tourism revenue, repeat visits, and the premium pricing that distinguishes high value from mass-market tourism markets. A destination where visitors face uncertain emergency care generates reputational risk that compounds over time. Conversely, a health system that manages visitor care effectively reduces emergency medical evacuations, retains the foreign exchange that medical referrals abroad would otherwise drain, and reinforces the investor and visitor confidence on which the tourism revenue base depends.

Zanzibar’s government development strategy is explicitly tourism and blue economy-led, which means the quality and accessibility of health services are strategic economic assets. The expansion into the blue economy, digital services, and light manufacturing — each identified as a priority diversification pathway in Zanzibar’s Development Plan — depends on a workforce whose productivity is not constrained by preventable illness, unaffordable care, or financial catastrophe from out-of-pocket health expenditure. Out-of-pocket spending remains a structural feature of health financing in economies where insurance coverage is incomplete, and every household that faces catastrophic health costs exits the formal economy with reduced productive capacity. The ZHSF’s coverage expansion, when adequately financed, directly addresses this constraint.

The fiscal argument for health investment in Zanzibar is therefore economical. A health system that reduces referrals abroad retains foreign exchange. A ZHSF that achieves genuine coverage reduces household vulnerability and sustains consumption. A prevention-led allocation that reduces hospitalisation rates keeps the working population productive. These are contributions to economic output, and they belong in the same planning conversation as infrastructure investment and revenue reform.

Expanding Fiscal Space for Health

While the 2026/27 budget indicates a nominal increase in health spending, sustaining and growing that trajectory will depend on Zanzibar’s ability to create additional fiscal space for health over time as public finances are already stretched. Domestic tax revenues represent only 34% of the total budget, and borrowed funds — domestic and external — constitute 57% of the financing envelope. As debt service obligations continue to absorb a growing share of recurrent expenditure, fiscal flexibility for additional health investment becomes constrained.

Expanding fiscal space will depend on three mutually reinforcing pathways:

• Actualizing the government’s plans for domestic revenue mobilisation: The government’s stated revenue agenda includes expanding Zanzibar Revenue Authority coverage, formalising the informal sector and improving compliance is the appropriate strategic direction. This agenda needs to be paired with concrete implementation steps to achieve results.
• Strengthening revenue from tourism and adjacent sectors: Pre-budget private sector consultations identified that tourism value leaks significantly through imported inputs and foreign-owned businesses, limiting the domestic fiscal multiplier. Policies that strengthen domestic value chains in food, construction, and hospitality supply would increase the share of tourism revenue that accumulates in the tax base and becomes available for public investment, including health.
• Earmarking financing instruments: Tanzania Mainland’s 2026/27 budget introduced earmarked cigarette and sugar levies directed to the Universal Health Fund. A statutory floor on health as a share of domestic revenue, or equivalent instruments anchored in domestic revenue will provide the predictability to the benefit of the ZHSF and the broader health system.

Looking Ahead

Zanzibar’s 2026/27 budget demonstrates political commitment to health investment — in prevention, in infrastructure, and in the ZHSF — at a moment of fiscal constraint. Maternal mortality has fallen from 145 to 121 deaths per 100,000 live births in two years, health facility construction is active across both Unguja and Pemba, and the ZHSF continues to extend coverage. These achievements reflect sustained commitment and should not be minimised.

The central challenge, however, is constructing a health financing architecture — anchored in growing domestic revenues, a self-sustaining ZHSF, and predictable earmarked instruments — that can hold these gains through the convergence of pressures such as declining aid, rising debt service, tourism revenue volatility, and an NCD burden that will compound system costs for decades.

Zanzibar’s experience is not unique. Small island and sub-national economies across the continent face a compressed version of the health financing challenge confronting every African government. What Zanzibar does in the next three to five budget cycles to build domestic financing resilience will determine whether the gains of the past decade are sustained or reversed.

Sources

• Revolutionary Government of Zanzibar, Ministry of Finance and Planning (2026). Budget Speech of the Minister of Finance and Planning: Government Budget for the Financial Year 2026/2027. Presented to the House of Representatives, Zanzibar, June 2026. (Original in Swahili; translated by Google Translate. Figures verified against the original document.)
• Revolutionary Government of Zanzibar, Ministry of Health (2026). Budget Speech 2026/2027. Presented to the House of Representatives, Zanzibar, May 2026.
• Zanzibar Development Plan, Blue Economy for Inclusive Growth and Sustainable Development, 2021 – 2026