The Gulf countries are facing an uncertain future as the oil price decline begins to affect their sovereign credit ratings. To weather the downturn, they will need to maintain prudent fiscal policies and continue to diversify their economies away from hydrocarbon industries.

Rating agency Standard & Poor’s (S&P) has revised its credit ratings for Gulf oil-exporting nations, having lowered its oil price assumptions for the coming year. The agency’s move could trigger further reviews by other agencies.

Bahrain was the most severely affected country, with its rating downgraded to BBB-/A-3. Oman was also downgraded while Saudi Arabia’s outlook was revised to negative.

Although the entire region is dependent on oil and gas, those countries that were the most negatively affected by S&P’s review are those with high oil break-even oil price coupled with high levels of uncertainty surrounding the direction of their fiscal policy.

Bahrain still has its 2015-2016 budget under parliamentary review, and S&P says that the implementation of sustainable reform that reduces its fiscal dependency on volatile oil prices is the country’s “key challenge”.

Both Bahrain and Oman face the problem of how to reduce their expenditure while not drastically cutting politically sensitive areas of their budget such as public wages.

Saudi Arabia is already planning a fiscal deficit this year as it plans to maintain its spending plans despite the oil price decline. The market will be carefully watching how the country’s new king and government manage its finances in 2015.

In comparison, Qatar and Abu Dhabi have both retained their high ratings with stable outlooks, benefiting from high levels of wealth, small populations and prudent fiscal policies.

With oil price volatility continuing, the region’s governments will need to regularly review their fiscal policies and continue to expand their non-oil industries to avoid the potential further downgrades.