Moody's decision to withdraw its investment grade for Brazil does not change “the commitment to the fiscal adjustment necessary for stabilizing the public debt and the prospect of recovery for the Brazilian economy in the medium run,” the Finance Ministry announced in a note.

For the ministry, the move is temporary and will be reversed “as soon as the currently debated measures designed to restore fiscal balance and growth are implemented and its results materialize,” the text reads.

Ratings agency Moody's withdrew yesterday (Feb. 24) Brazil's investment grade, which served as a guarantee that the country would not default on its public debt. The downgrade brings Brazil down to Baa2, the second highest rating for junk. Moody's was the only among the three biggest rating companies which had not removed the country's investment grade, previously Baa3, the lowest above junk.

With regards to the country's fiscal scenario, the note says, the Federal Government saved $33.7 billion in 2015 by cutting on spending and stimulating income. In 2016, efforts remain in the same direction. On February 19, the government announced a major reduction in discretionary expenditures—$5.9 billion below the amount established in 2016's Annual Budget Law (LOA, in the original acronym).

The Finance Ministry further highlights key actions aiming to control spending and raising revenues, such as the DRU, for withholding federal revenues, and the Temporary Contribution on Financial Transactions (CPMF), which are currently under debate in Congress. By the end of March, the ministry reported, the government will submit further proposals for fiscal balance, which should set new limits to the expansion of public costs.

Also currently under evaluation is the implementation of the so-called State Fiscal Responsibility Law, which includes a series of adjustment measures for states and municipalities in exchange for extending deadlines for the payment of their debts. Finally, by late April, the government is to submit to Congress a plan for a reform in Brazil's social security system designed to ensure sustainability in the medium run. “All these initiatives are aimed at dispelling uncertainties regarding the fiscal efforts and restoring the trust of agents, a crucial condition for the recovery of investment,” the note points out.

The government has also drawn up a growth-oriented agenda by adopting measures designed to enhance the regulation of programs on the country's infrastructure and logistics, such as Program for Investment in Logistics (PIL) and the Accelerated Growth Program (PAC), as well as the development of initiatives to stimulate the credit market for key economic sectors.