Persistent current account deficits in developing countries like Ghana drain reserves, increase debt, and pressure the cedi, especially under managed float regimes (not pure free market, with BoG interventions). Ghana’s deficits (avg. 3-5% GDP) stem from import reliance (oil, machinery) vs. exports (gold, cocoa), exacerbated by 2022 global shocks.

a. Recommended policy: Devaluation (or depreciation) of the domestic currency. This makes exports cheaper and imports costlier, improving trade balance via J-curve effect (initial worsening, then improvement). In managed regimes, BoG can administratively devalue (e.g., 1980s structural adjustments under ERP devalued cedi by 90%+). Impacts: Raises import prices (inflationary), boosts export competitiveness (e.g., cocoa earnings rise), but increases debt service in local terms. In Ghana’s 2022-2023, cedi fell ~50%, aiding exports but fueling 54% inflation; policy via forex auctions and reserves use (per BoG Act).

b. Effective alternative: Expenditure-switching and reduction policies, like fiscal austerity and structural reforms.

• Fiscal Consolidation: Cut spending, raise taxes to reduce import demand; Ghana’s 2023 IMF program targeted primary surplus via VAT hikes.
• Export Promotion: Incentives like tax breaks for non-traditional exports (e.g., AfCFTA utilization).
• Import Substitution: Tariffs or subsidies for local production (e.g., One District One Factory initiative).
• Attract FDI: Reforms to boost inflows (e.g., GIPC Act), financing deficits without debt.
• Reserve Management: Build buffers via gold reserves (Ghana’s 2021 gold purchase program).
• Monetary Tightening: Higher rates attract capital inflows, but may slow growth.

These address root causes (e.g., productivity gaps), unlike devaluation’s symptomatic relief, as seen in Ghana’s post-2019 strategies for resilience.