Global debt has reached a dangerous threshold. The IMF’s managing director, Kristalina Georgieva, warned that governments face rising debt, higher borrowing costs, inflation, geopolitical conflicts, and the economic disruption created by artificial intelligence.
Global debt-to-GDP ratios now sit at their highest level since the second world war and are on course to hit 100% in the coming years. Bond yields have jumped in recent weeks, pushing the cost of borrowing for many governments to multi-decade highs.
That leaves governments with fewer comfortable choices. Georgieva said they cannot rely on rapid economic growth to lift the burden of debt, and she warned that global debt levels are soaring. Her prescription was blunt: governments need to make “very tough political choices.”
“we cannot keep delaying necessary policy action – you have the tools, now have the wisdom to use them,” Georgieva said. The message is aimed at governments facing pressure to spend while borrowing costs rise, a combination that tends to make fiscal wishful thinking look less like a plan and more like a hobby.
AI spending is becoming an economic force
Georgieva also placed artificial intelligence at the centre of the global economic outlook. She said AI investments are likely to exceed the relative scale of spending on building railroads, electricity grids, and telecommunications networks.
“AI is here, rapidly becoming a key driver of countries’ relative fortunes in the world economy,” she said. That shift makes AI policy part of economic policy, not a side issue reserved for technology departments and conference stages.
The Asia-Pacific region sits at the centre of that change. Seven of the top 10 countries for AI-related trade are in the region, while its share of global economic activity has risen to 43% from 25% in 1991.
Those figures give the AI race a clear geographic shape. The region’s growing share of global economic activity now meets its leading position in AI-related trade, creating a link between technology investment and the balance of economic power.
AI brings costs along with its promise
AI is also raising energy demand and pushing prices for fuel, fertilizer, food, and other key commodities higher. The technology may promise productivity and new sources of growth, but its expansion adds pressure to economies already dealing with debt and inflation.
That creates a policy problem with no easy slogan. Governments must respond to higher energy demand and commodity prices while deciding how much support AI investment deserves, all without assuming that growth will solve the debt burden by itself.
Georgieva said governments need policies that ensure AI is well regulated and workers receive training. She also called for more flexible labor markets, easier entrepreneurship, and improved energy security.
“Policies are needed to ensure AI is well regulated and to train workers, make labor markets more flexible, facilitate entrepreneurship and improve energy security,” Georgieva said. The list is broad because the problem is broad: AI touches public finances, employment, energy, trade, and national economic strength at the same time.
There is also a financial risk tied to the companies driving AI investment. Georgieva warned: “Should earnings fall short, hyperscaler leverage and large and growing global holdings of U.S. equities could turn a disappointment into a far-reaching shock.”
That warning puts the excitement around AI spending beside its exposure to disappointment. If earnings fail to meet expectations, leverage among hyperscalers and large global holdings of U.S. equities could spread the impact beyond the technology sector.
The IMF’s argument is not that governments should ignore AI. It is that they cannot treat AI spending, debt, energy demand, inflation, and labor policy as separate files. The numbers are already colliding, and the tools are already available.
Now comes the less glamorous part: using them before rising debt and borrowing costs leave governments with even fewer choices.
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