Accounting for Ghana's External Borrowings, Trade Balances, and Domestic Currency in Recent Times*

Abstract

This paper seeks to draw the links among Ghana's rising external debt stock, depreciation of the domestic currency and balance of payments account balances. It uses national income and national product identities to show how components of national product identities are affected by international transactions that are reflected in balance of payments accounts. It found that over 2008 to 2016, Ghana ran trade deficits, which were paid for by net foreign capital inflows, mostly debt; investments in the economy exceeded savings; government ran budget deficits; and private investments exceeded private savings. The domestic currency depreciated over the entire period, but exports did not expanded above imports. It concluded that, it is Ghana's current account deficits that necessitated foreign borrowings, and that without these loans, the domestic currency would have depreciated even more.