Saudi government dollar bonds posted losses in early trade on Monday as investors absorbed the finance minister's comments that the country would take strict and painful measures to deal with the economic impact of the pandemic.

By 1136 GMT, Saudi Arabia's 35-year bonds due in 2055 had lost 1.4 cents to trade at 89.8 cents on the dollar, while its 40-year bonds due in 2060 shed 1.6 cents to trade at 98.2 cents on the dollar, Refinitiv data showed.

The country saw steep losses on its other bonds as well, while most other bonds from the Gulf saw smaller losses and some even strengthened marginally.

Finance Minister Mohammed Al-Jadaan said on Saturday the government "must reduce budget expenditures sharply" and that the impact of the new coronavirus on Saudi Arabia's state finances would appear from the second quarter of the year.

Japan's Mitsubishi UFJ Financial Group Inc (MUFG) said in an analyst report on Monday that large fiscal deficits could pressure the country's credit rating and cost of borrowing.

MUFG said it expected Saudi Arabia's real GDP to contract 3.2% this year, its worst since 1999. It also forecast public debt would rise to 31.6% of GDP - the highest since 2005 - and foreign reserves fall by up to $47 billion.

Saudi Arabia's large capital buffers will allow it to weather low oil prices over the medium-term, the bank said in its note, also commending the kingdom's forward guidance to markets regarding its policy responses to the economic shock.

MUFG added that the Saudi riyal's peg to the U.S. dollar remained "bullet-proof" despite market fears over its long-term stability.

"While we expect the peg to be maintained, large fiscal deficits is likely to put pressure on the sovereign's credit ratings and cost of funds, which could build vulnerabilities over the medium-term," the bank said.

Saudi Arabia increased its debt ceiling to 50% of GDP from a previous 30% in March and has already raised $12 billion in international bonds this year.