UPDATE 2-Ecuador sees higher growth in 2012, 5.35 pct-Correa

Wed Nov 2, 2011 8:01am IST

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* Budget bill sees inflation up at 5.14 pct in 2012

* Bill forecasts fiscal deficit at $4.23 billion

* 2012 budget forecasts oil at $79.70 per barrel (Adds details, byline, previous GUAYAQUIL)

By Alexandra Valencia and Eduardo Garcia

QUITO, Nov 1 (Reuters) - Ecuador President Rafael Correa said on Tuesday the Andean country forecasts its economic growth increasing slightly to 5.35 percent in 2012.

Increased investments helped Ecuador's economy grow 8.9 percent in the second quarter versus the same period last year, and the oil-producing country is on track to meet its 5.24 percent growth target for 2011. [ID:nS1E78S16R]

"The (economic) growth we forecast for next year is 5.35 percent," Correa told reporters when asked about the 2012 budget bill.

The finance ministry said in a statement that the bill forecasts annual inflation at 5.14 percent in 2012. Official estimates forecast full-year 2011 inflation at 3.69 percent, slightly higher than the 3.33 percent registered last year.

The budget bill states that public spending will increase to $26.11 billion in 2012, up from $23.95 billion this year, and that $1.46 billion will be used to pay public debt.

The bill will likely be approved by Congress, in which the ruling Alianza Pais coalition and its allies have a majority.

PUBLIC SPENDING

The finance ministry said the budget forecasts a fiscal deficit next year of $4.23 billion, but Correa said Ecuador has already secured financing for the fiscal gap.

After excluding itself from debt markets by defaulting on $3.2 billion in global bonds three years ago, Ecuador has met funding needs with bilateral credit deals, mostly from China.

Ecuador signed a $2 billion credit deal with China in June and took a $571 million loan from a Chinese bank last month, which pushed debt commitments to China to about $7.3 billion, including loans, advance payments for oil sales, and energy project financing. [ID:nN1E75Q1PC]

High oil prices have allowed Correa to boost spending on hospitals, roads and schools, which in turn has improved his popularity among the majority poor. Increased state spending has also stocked economic growth.

The budget forecasts average oil prices at $79.70 per barrel in 2012. Ecuador produces about 500,000 barrels of oil per day and it is OPEC's smallest member.

"Fitch considers that Ecuador's growth performance is vulnerable to a decline in international oil prices, since the government has limited counter-cyclical policy options given the country's dollarization regime and limited financing sources," the rating agency said in a statement last week. (Additional reporting by Yuri Garcia; Writing by Eduardo Garcia; Editing by Eric Walsh)

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