Brazil’s Finance Minister Joaquim Levy has resigned as Latin America’s largest economy struggles to recover from recession.

Joaquim Levy has decided to leave after disagreements with President Dilma Rousseff and the governing Worker’s Party over his austerity policies.

He is being replaced by a close ally of Dilma Rousseff, the current Planning Minister Nelson Barbosa.

Brazil is facing its worst recession in 25 years.

In a statement, Joaquim Levy said he remained confident that the economy could recover in 2016.

“Time will show that we will reap the results of all that has been done this year, putting the Brazilian economy back on track,” he wrote.

Brazil’s economy shrank by 1.7% in Q3 of 2015 compared with Q2. Compared with a year ago, the economy is 4.5% smaller.

Inflation is also on the rise, with the annual rate hitting 10% in November 2015.

Joaquim Levy’s resignation is a huge blow to those who advocated tougher budgets and limited austerity to tackle Brazil’s deepening economic crisis.

His attempts to tighten government budgets were repeatedly blocked by Worker’s Party stalwarts in Congress.

The new minister says he will keep a tight control on public spending.

Nelson Barbosa: “If we control government spending we will manage to control public debt and we will eventually be able to reduce public debt.”

Inflation is expected to begin falling next year, he added.

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President Dilma Rousseff gave no reason for Joaquim Levy’s departure.

The change comes amid a serious political crisis in Brazil.

Earlier this month the Speaker of the lower house of Congress, Eduardo Cunha, agreed to begin impeachment proceedings against President Dilma Rousseff over alleged irregularities in the management of last year’s budget.

On December 18, however, the Supreme Court handed Dilma Rousseff an important victory.

It scrapped a commission set up to deal with impeachment proceedings against the president, in a major setback for the opposition.

The court also gave more powers to the government-controlled Senate to block the impeachment process.

The ruling means that proceedings initiated earlier this month will have to start from scratch.