Georgieva flags AI loss of control as emerging financial stability risk
The International Monetary Fund’s managing director has called on advanced economies to reduce debt levels and prioritize fiscal consolidation, warning that political “courage” is needed to confront rising government borrowing costs.
Kristalina Georgieva issued the appeal in an exclusive interview on the sidelines of the United Nations General Assembly in New York. Her warning lands as weeks of surging government interest costs have hit advanced economies, including the United Kingdom and the United States.
Georgieva said global economic shocks had been “pushing debt levels up like a staircase not to heaven,” adding that governments had taken “no action to contain that service cost.” She described the situation as one requiring immediate action: “[It’s] time to take that action.”
The borrowing-cost pressure is already visible in official data. UK government borrowing reached £18.3 billion ($24.4 billion) in August, nearly a fifth higher than the same month a year earlier and above official forecasts. Debt interest costs for the month were the highest August figure since monthly records began in 1997. The figures are weighing on the run-up to Prime Minister Andy Burnham’s first Budget next month, with speculation building over potential tax-and-spending policies.
Across the Atlantic, the United States — the world’s largest economy — has seen its national debt surpass $40 trillion, a sum that has doubled within the space of a decade and prompted concerns both domestically and abroad.
Georgieva said the IMF’s message to advanced economies was that even as external factors — including wars disrupting oil supply — push borrowing costs higher, governments retain command over domestic policy. “There are these two things that must be done: bring debt levels down, put fiscal consolidation as a priority, and make sure that the central banks deliver on their mandate for price stability,” she said.
“It is impossible to stress strongly enough how critical it is to get the courage to take the steps that are necessary,” she added. “These are politically tough steps to take, but necessary steps to take.”
Asked specifically about the United Kingdom’s higher interest costs compared to other major economies, Georgieva described its position as “not very different” from that of others. She pointed to “fairly consistent action” on lowering debt and praised planning and housing reforms, while noting that advanced economies “don’t have the cash” to boost growth directly and therefore must rely on reforms to encourage private-sector investment.
The pressure on bond markets has multiple sources. Concerns that inflation will erode returns have pushed bond yields — the interest rates governments pay when selling bonds — higher in recent months. Adding to demand for investor capital, large technology companies have raised substantial sums to fund artificial intelligence development, intensifying competition in the bond market.
Georgieva separately raised AI itself as a financial-stability concern. “If we see more incidents when AI takes [on a] life of its own, then we can be faced with a significant financial stability risk,” she said. She repeated the IMF’s assessment that two forces were “pushing in opposite directions” — an energy-price shock on one side and AI investment on the other.
For that balance to normalize, Georgieva said, low exports of oil and gas from the Gulf need to “resume in a durable manner” so the energy-supply shock could “finally be in the rearview mirror.” She acknowledged that normalization has not yet occurred.