IMF chief urges faster debt cuts as AI boom adds new global risks

IMF Managing Director Kristalina Georgieva on Wednesday urged countries to move faster to cut debt and tackle rising inequality as the global economy faces pressure from the artificial intelligence boom, heavy borrowing and shocks from wars in the Middle East and Ukraine. She said governments now face difficult policy choices and must stop delaying action.

Speaking in Singapore ahead of the autumn IMF-World Bank meetings in Bangkok next week, Georgieva said both advanced and poorer economies were under strain. She warned that while AI is driving investment and supporting growth, it is also adding new risks at a time when many countries are already dealing with high debt, inflation and geopolitical shocks.

"Some very tough political choices stare us in the face," Georgieva said. "My message to the world's economic policymakers next week will be this: we cannot keep delaying necessary policy action -- you have the tools, now have the wisdom to use them," she said.

At the meetings in Bangkok, finance ministers and central bank governors from 191 IMF-World Bank member countries will review the state of the world economy and discuss ways to support financial stability and sustained growth. Georgieva said recent conflicts in the Middle East, Ukraine and elsewhere had delivered some of the hardest blows to global well-being.

She said excessive debt was becoming a growing burden not only for wealthy countries such as the US, Japan and Germany, but also for low-income nations forced to choose between spending on public welfare and repaying costly loans at a time of high interest rates.

Georgieva also pointed to risks linked to the rapid expansion of data centre capacity for AI, which has helped push stock markets in many places to record highs and supported strong growth despite high energy costs due to the Iran war. She said investment in AI was likely to exceed the relative scale of past spending on railways, electricity grids and telecommunications networks.

"Love it, hate it or fear it, AI is here, rapidly becoming a key driver of countries' relative fortunes in the world economy," she said. She added that the AI building boom was supporting strong corporate earnings as well as higher inflation, but there was a gap between the heavy spending now and the eventual arrival of AI's benefits.

"Should earnings fall short," she said, "hyperscaler leverage and large and growing global holdings of US equities could turn a disappointment into a far-reaching shock."

Georgieva said seven of the top 10 countries for AI-related trade were in the Asia-Pacific region, where the share of global economic activity has risen to 43 per cent from 25 per cent in 1991, when the meetings were last held in Bangkok. She said China, India, Japan, South Korea, Taiwan and other economies with strong technology sectors were gaining from the AI boom, but most others were being left behind, widening inequality. AI was also increasing energy demand and pushing up prices of fuel, fertiliser, food and other key commodities.

She urged governments to rein in public spending and raise borrowing costs where needed to control inflation, while protecting the most vulnerable. She also called for policies to regulate AI properly, train workers, make labour markets more flexible, support entrepreneurship and strengthen energy security. Overall, Georgieva's message was that countries must act quickly on debt, inflation and inequality while preparing for the opportunities and risks created by AI.

With PTI Inputs

- Ends