LONDON: An artificial intelligence-driven productivity surge could ease pressure on heavily indebted major economies but is unlikely to resolve long-term fiscal challenges, economists have warned.
Public debt across most advanced economies now exceeds 100 per cent of output and is expected to rise due to ageing populations, higher interest costs and increased spending on defence and climate initiatives.
Analysts say AI has the potential to boost economic growth by improving worker efficiency and enabling businesses to focus on higher-value tasks. Stronger growth would make government debt more manageable and reduce vulnerability to financial market pressure.
The OECD estimates that a sustained productivity improvement linked to AI could reduce debt levels in member countries by around 10 percentage points by 2036. However, debt would still rise significantly from current levels, highlighting the limited scope of technological gains to offset structural fiscal pressures.
Outcomes will depend on whether AI creates new employment opportunities or displaces workers through automation, and whether productivity gains translate into higher wages and tax revenues.
In the United States, some projections suggest debt could stabilise around 120 per cent of output over the next decade in optimistic scenarios, compared with roughly 100 per cent today. Other analysts foresee little meaningful change.
Experts stress that demographic pressures remain the primary driver of rising public debt. Ageing populations increase spending on pensions and healthcare, while labour market shifts could limit revenue growth.
Public spending demands linked to security and environmental investment further complicate fiscal trajectories. Bond investors have shown increasing willingness to penalise governments that pursue unsustainable borrowing, pushing yields higher in recent years.
Productivity gains could enhance government revenues if businesses expand and wages rise, but there is also a risk that AI-driven automation reduces employment or concentrates profits in areas subject to lower taxation.
Public sector efficiency improvements might help control costs, though analysts caution that spending often rises alongside economic growth, limiting fiscal benefits.
The debate remains highly uncertain. Economists acknowledge that technological advances could transform growth prospects, but structural challenges such as demographic change and existing debt burdens will continue to shape fiscal policy.
A sudden economic downturn could also undermine projections. Recessionary conditions might intensify market concerns about public finances before AI benefits materialise, increasing borrowing costs and complicating debt management strategies.
