Macroeconomic Forecast Ecuador

BMI View: Foreign reserves finished 2011 at US$2.96bn, slightly up from 2010 levels, thanks to stronger energy prices and solid investment from China. However, by our calculations this figure actually represents a drop off in import cover, from a peak of 2.4 months back in 2009 to just 1.6 months by the end of 2011. This will be a worrying trend for the authorities, as the economy's dollarized status means they rely on healthy reserve levels to support expansive fiscal policies. With government spending set to increase ahead of the 2013 election, we expect reserves to fall to just US$2.00bn by end-2012, representing just over one month of import cover.

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