DUBAI: Oman and Saudi Arabia are expected to tap their sovereign wealth funds (SWFs) to cover rising funding needs, but this will likely weaken their fiscal position more than other countries in the oil-dependent Gulf region, Moody's said on Wednesday.

The ratings agency expects oil prices to remain below their trajectory prior to the COVID-19 pandemic as a result of lower demand in sectors like aviation, resulting in higher deficits among Gulf states.

"Under most plausible scenarios, the level of SWF coverage of government debt stocks will fall significantly for Saudi Arabia and Oman, weakening their fiscal strength over the medium term," Moody's said.

It forecast Saudi Arabia's share of asset drawdown relative to net budgetary financing to fall to 29% this year from an estimated 36% in 2020. The rest will come from debt issuance - 80% from domestic capital markets and 20% from international markets.

Oman's current foreign reserves were "more than ample" to maintain its currency's peg to the dollar, Moody's said.

It estimated that Oman's debt burden could rise to 75% of GDP by 2022 from 60% of GDP in 2019, and that its liquid SWF assets could decline to 13% of GDP from 32% during the same period.