Question

Discuss briefly whether the current account deficit is necessarily harmful to Ghana.

Answer 1

It is not necessarily harmful to a country's economy if the country has a current account deficit. This is especially true if the deficit is not too large. For example, the United States has had a current account deficit since the mid-1970s and has not been affected too badly by that.

The reason for this is that most of the current account deficit comes from trade. In other words, a country that imports more than it exports (as the US does) will usually have a current accounts deficit. However, it is not all bad to have a trade deficit. Importing more than you export can simply mean that your economy is much richer than other economies. In such circumstances, a country often imports many products made by low-skilled foreign labor. The country's own workers are then freed up to do things that require more skill and are more lucrative.

Because of this, economists say that it is not necessarily bad to have a current accounts deficit.

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