Below is an extract from the 2021 Budget Statement and Economic Policy of Ghana:

External Sector Developments

The trade account recorded a lower surplus of US$2.02 billion (3.0% of GDP) compared with US$2.26 billion (3.4% of GDP) in 2019. The decline in the surplus was driven largely by a 7.8  percent contraction in total export receipts, especially from crude oil exports, which declined  sharply by 35.2 percent. In addition, the value of total imports contracted by 7.3 percent,  reflecting a slowdown in import demand due to the COVID 19 pandemic.  The overall Balance of Payments (BOP) recorded a deficit of US$0.63 billion in 2020, compared  with a surplus of US$1.34 billion in 2019.  Gross International Reserves (GIR) stood at US$8.62 billion, equivalent to 4.1 months of  imports cover, at the end of December 2020, from a stock position of US$8.42 billion equivalent to 4.0 months imports cover) at the end of December 2019.  Cumulatively, the Ghana Cedi depreciated against the US Dollar, the Pound Sterling, and the  Euro by 3.9 percent, 7.1 percent, and 12.1 percent, respectively. This compares with largerdepreciation rates of 12.9 percent, 15.7 percent, and 11.2 percent for the US Dollar, Pound Sterling, and Euro, respectively, during the same period in 2019. 

Requirement 

a) Drawing from your knowledge of the Absolute and Comparative Advantage theories, suggest possible ways in which the trade surplus could be enhanced in the ensuing years.

b) Account for the effect of the depreciation of the Ghana Cedi against the major currencies on trade in Ghana. 

 

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