IMF Director Warns: AI Boom May 'Exacerbate Global Inequality'

Georgieva said in a speech ahead of the IMF's annual meetings in Thailand next week that the proportion of AI investments to GDP is likely to exceed the funds pumped into railways, electricity or telecommunications networks.

She added that growth in AI-related trade is particularly concentrated in the United States, China and India, where companies are spending heavily on data centers and other infrastructure, while other countries benefit from the manufacturing of electronic chips and robots.

Georgieva said, 'Whether we like it or not, fear it or love it, AI is here, and it is rapidly becoming a key driver of where countries stand in the global economy.'

She warned that 'while it is pushing today's AI economies forward, it is largely bypassing most others, increasing the risk of widening economic inequality across the world.'

She added, 'Success requires everyone to be involved to benefit from the transformative power of AI, and for this it will be very important to make it accessible across the world.'

Georgieva's speech comes amid growing concerns about the huge amounts being poured into the sector, and questions about when investors will see returns on these investments, after the boom fueled a surge that has pushed markets to record highs in the past two years.

Tech companies continued to rise even after a summer slump, with chipmaker 'Nvidia' hitting a record high on Tuesday, pushing its market value to nearly $5.7 trillion.

Georgieva warned that 'if profits come in below expectations, the high levels of indebtedness of large tech companies, along with large and growing global holdings of U.S. stocks, could turn disappointment into a broad-based shock.'

- Difficult Choices -

Georgieva also addressed rising government debt levels, as borrowing costs increase due to rising inflation and interest rates, alongside massive bond issuances to finance investments in AI.

She said, 'High yields are inflating the interest bill at a time when budgets are under severe constraints and competing spending priorities, including defense.'

She added, 'Then, high key interest rates drive up yields on short maturities, directly impacting the cost of short-term debt.'

She continued, 'Yet, we do not see decisive action in high-debt advanced economies, where there is an urgent need for credible medium-term fiscal adjustment plans, supported in some cases by immediate fiscal measures.'

Inflation has been largely driven by the jump in oil prices since the outbreak of war in the Middle East, but Georgieva said the shock, despite its severity, has been contained thanks to the availability of reserves, improved energy efficiency and emergency planning, among other factors.

However, she noted that oil prices remain above $100, diesel has reached record highs and natural gas supplies from the Gulf remain severely disrupted, particularly affecting Asia and Europe.

She warned that even if the war in Iran ends quickly, 'the problem of high energy prices is likely to persist for some time.'

She praised some central banks for acting to tackle inflation by raising interest rates, saying that 'now may be the time to adopt a cautious tilt towards monetary policy tightening in many countries.'

She said emerging markets face higher borrowing costs and more volatile capital flows, while low-income countries may have to cut essential development spending.

Georgieva added, 'My message to the world's economic policymakers next week will be this: We cannot continue to postpone the necessary actions, you have the tools, use them wisely now.'

She continued, 'We face some very difficult policy choices.'

Georgieva urged policymakers 'to explain to people why fiscal adjustment is necessary, and why it is in their interest. Bear some pain today for growth tomorrow.'

She stressed that they must also'make plans to minimize as much as possible the cost to future growth, and protect the most vulnerable in society', alongside 'pursuing complementary structural reforms.'

AFP + Alrai