Standard and Poor, which previously downgraded Saudi Arabia’s sovereign debt, has said that this in turn may contribute to a gradual repricing of the Gulf’s international bonds, reported Reuters.

The argument is that the bonds will sink to lower levels as they reflect risks created by low oil prices.

This is because cheap oil is opening up state budget deficits, undermining bond prices across Gulf Arab economies in coming months and years.

“A relative lack of new issuance, combined with a market dominated by buy-and-hold investors, means that we have probably not widened as much as we should have given the changing risk profile in the region,” said Abdul Kadir Hussain, chief executive of Dubai’s Mashreq Capital.

The Saudi Finance Ministry had condemned the downgrade, saying it was unjustified.

The country promptly terminated its rating agreement with S&P, forcing the agency to classify its assessment of the kingdom as “unsolicited”.

According to Bloomberg the IMF predicts a fiscal gap exceeding 20% of economic output this year, adding that at this rate Saudi savings would run out after five years.

Nonetheless, consumer spending levels in Saudi Arabia have not been affected by the burgeoning deficit, with average monthly retail sales up more than 10% this year.

“Directly, the cuts are not going to affect a typical household,” said Farouk Soussa, London-based Middle East Economist at Citigroup Inc. He believes also that Saudi authorities probably won’t touch “the social safety net, the welfare transfers or any of the social expenditures the government undertakes.”

Fahad al-Turki, chief economist at Jadwa Investment Co., says that the Saudi government may postpone subsidy reforms till next year as it’s trying to “mitigate the impact of oil prices on the domestic economy as a whole, and on consumers in particular.”

It is true that the government has trimmed project spending and payments to contractors, but it is also the case that King Salman handed out two-month salary bonuses to all state employees as part of a package costing about $30b upon ascending the throne in January.