AI Is Keeping Global Growth Afloat, but a Debt Trap Is Closing In, IMF Warns

Artificial intelligence is keeping global growth resilient, but soaring debt, rising borrowing costs and renewed inflation pressures are eroding governments’ capacity to withstand future shocks. The IMF warns that technological gains alone cannot restore financial stability as economic divides widen and fiscal buffers shrink.

The global economy is expanding at a steady pace, yet governments are losing the financial flexibility needed to protect it. An artificial intelligence investment boom is helping offset energy disruptions, but mounting public debt, higher borrowing costs and renewed inflationary pressures are leaving policymakers with increasingly difficult choices.

International Monetary Fund (IMF) Managing Director Kristalina Georgieva delivered this warning in Bangkok, outlining an economic landscape where technological progress is accelerating faster than countries' capacity to manage its financial consequences. Global growth is projected at 3.1% in 2026, unchanged from the IMF's October 2025 forecast, but the stability of that headline figure conceals deepening economic divisions.

The uncomfortable reality is that resilience today does not necessarily translate into preparedness for tomorrow. Countries are simultaneously financing technological transformation, absorbing geopolitical disruptions and servicing accumulated debt, while the financial buffers needed to withstand another shock are becoming harder to rebuild.

The AI boom is cushioning growth while creating fresh economic pressures

Two competing forces are shaping global economic performance. Energy supply disruptions are pushing inflation higher and weakening economic activity, while investment connected to artificial intelligence is providing an offsetting source of growth. Their combined effect has kept the global outlook steady despite substantial pressures beneath the surface.

The benefits, however, are concentrated unevenly. The United States, China, India and other economies participating in AI-related value chains have received growth upgrades, while countries affected by conflict have experienced substantial downward revisions. Technological investment is consequently creating sharper differences in economic performance rather than lifting all economies equally.

AI's contribution also involves a financing dilemma. Developing the infrastructure required for increasingly sophisticated systems demands enormous investment, much of it supported by debt. Such spending can stimulate activity immediately, but it also adds inflationary pressure before the anticipated productivity improvements become fully visible.

Georgieva acknowledged that productivity gains are emerging, although their eventual magnitude and timing remain uncertain. Governments therefore cannot safely assume that faster AI-driven growth will automatically resolve fiscal imbalances. Investment requirements are immediate, whereas the economic returns needed to strengthen public finances may arrive more gradually.

External disruptions are making the adjustment harder. Threats to maritime shipping, refinery constraints and natural gas shortages are maintaining pressure on energy markets. A powerful El Niño event is also affecting food prices, exposing poorer households to additional costs when governments have limited room to expand assistance.

So, the emerging divide is not simply between technologically advanced and technologically disadvantaged economies. It also concerns which countries can afford the investment necessary to participate in AI expansion while maintaining sufficient resources to manage inflation, employment disruption and financial risks.

Rising bond yields are turning government debt into a global vulnerability

Financial markets are increasingly reflecting the strain on public finances. The IMF chief reported that ten-year sovereign bond yields in the United States, Germany and Japan had recently reached their highest levels since 2002, 2009 and 1996, respectively. These increases are transmitting higher financing costs across advanced and emerging economies.

For highly indebted governments, expensive borrowing creates a difficult cycle. Greater spending on interest payments reduces resources available for development, infrastructure and social protection. Countries with substantial short-term debt face additional exposure because monetary tightening raises refinancing costs more quickly.

The IMF nevertheless supports central banks maintaining a firm stance against inflation. Georgieva endorsed recent tightening actions and policy communication from the Federal Reserve, European Central Bank and Bank of Japan, emphasizing the danger of allowing inflationary pressures to become more entrenched.

Such monetary discipline creates an unavoidable conflict with fiscal objectives. Higher interest rates may help contain inflation but simultaneously increase government financing costs. Delaying inflation control could necessitate even stronger intervention, while postponing fiscal adjustments leaves debt trajectories vulnerable to further deterioration.

Georgieva's prescription is credible medium-term fiscal consolidation, particularly among major advanced economies whose borrowing decisions affect global financial conditions. She stressed that stronger economic growth alone cannot reverse rising public debt sufficiently quickly without deliberate budgetary adjustments.

Lower-income economies confront a different but equally restrictive problem. Their debt-to-GDP ratios may be comparatively modest, yet elevated interest burdens and declining official assistance are constraining development expenditure. Fiscal restraint must therefore be weighed against the need to preserve essential investment and protect vulnerable populations.

The challenge extends beyond balancing national budgets. Excessive reliance on domestic demand in the United States and net exports in China also contributes to global imbalances. The IMF is urging greater American savings, stronger Chinese consumption and increased European investment alongside deeper EU integration.

The next financial shock could expose gaps that technology cannot repair

The IMF chief's warnings extend beyond conventional fiscal and monetary risks. Artificial intelligence introduces vulnerabilities involving employment, government revenue and cybersecurity, creating pressures that existing economic safeguards must increasingly accommodate.

Georgieva identified youth joblessness, potential erosion of tax revenues and financial instability among the dangers requiring attention. Cybersecurity presents a particularly serious cross-border challenge as attacks increase and the period between discovering software vulnerabilities and exploiting them contracts dramatically.

The IMF is responding through financial supervision assistance, institutional reviews and capacity development. It provides approximately 300 annual technical assistance and training programs in financial supervision, alongside around 15 Financial Sector Assessment Programs, while updating its frameworks for surveillance, lending conditions and debt sustainability.

Its financial backstop remains substantial. Outstanding credit and undrawn commitments total approximately $240 billion, with unused lending capacity around three times that amount. Concessional lending stands at $36 billion, roughly four times its historical average. Yet strengthening support for poorer economies requires further international agreement. Assurances for the Poverty Reduction and Growth Trust have reached nearly 48%, with potential European Union contributions lifting the figure to 74%, still below the agreed 90% objective.