The International Monetary Fund (IMF) has warned that the global economy cannot rely on the Artificial Intelligence (AI) boom to overcome rising public debt, energy shocks, and high borrowing costs. According to IMF Managing Director, Ms Kristalina Georgieva, although AI-related investment is supporting growth and trade, inflationary pressures from energy and food shocks, tariffs, defence spending, and high public debt remain significant risks.
Ms Georgieva made these remarks while speaking at the Lee Kuan Yew School of Public Policy in Singapore ahead of the IMF-World Bank Group annual meetings in Thailand. She urged governments and finance chiefs to act decisively to safeguard economic stability, rebuild fiscal buffers, and sustain inclusive global growth. The IMF Chief emphasized that the global economy is facing a challenging period with inflationary pressures from various sources.
Ms Georgieva noted that AI-related trade is expanding, reflecting an investment boom in economies integrated into its value chain. However, she cautioned that inflation could resurface despite recent progress. The IMF Chief listed several inflationary factors, including the AI building boom, energy and food shocks, tariffs, defence spending, and high public debt. She emphasized that the global economy is in a tougher position and that relying on growth to overcome fiscal challenges may not be effective.
The IMF Chief also highlighted that interest rates have remained below economic growth rates for 17 years, making public debt easier to manage. However, this period has ended, and assuming that AI-driven growth would be sufficient to repair public finances could instead deepen global economic vulnerabilities. Ms Georgieva recommended that high-debt advanced economies adopt credible medium-term fiscal consolidation plans to address these challenges.
For emerging markets, Ms Georgieva called for measures to expand fiscal space and strengthen foreign exchange buffers. She noted that low-income countries are being forced to cut essential development spending to manage fiscal pressures. The IMF Chief emphasized that policymakers must take necessary actions to safeguard economic stability and sustainability. She also welcomed interest-rate increases by major central banks but noted that they still have work to do.
The 191 IMF member countries will focus on three major concerns at the annual meetings: an uneven AI boom that could widen inequality, energy prices approaching US$100 a barrel, and public debt nearing 100 per cent of global Gross Domestic Product (GDP). Tharman Shanmugaratnam, President of Singapore, underscored the role of monetary authorities in containing economic pressures and cautioned against governments imposing their will on central banks.
The IMF Chief concluded that policymakers must use available tools wisely to address these challenges. She emphasized that governments have limited fiscal space to deal with future crises and that monetary authorities must be allowed to operate independently. The annual meetings will provide a platform for policymakers to discuss these issues and develop strategies to promote economic stability and sustainability.
Key points
- The IMF warns against relying on the AI boom to overcome rising public debt, energy shocks, and high borrowing costs.
- The global economy faces significant risks, including inflationary pressures from energy and food shocks, tariffs, defence spending, and high public debt.
- The IMF recommends that policymakers take decisive actions to safeguard economic stability, rebuild fiscal buffers, and sustain inclusive global growth.
