The global economy is under threat from persistently high energy prices, record public debt and risks from the AI investment boom, International Monetary Fund (IMF) MD Kristalina Georgieva warned on Wednesday, urging governments to implement protective fiscal and monetary policy measures.

In a speech previewing IMF and World Bank Annual Meetings next week in Bangkok, Georgieva said the world was being pulled in two directions — a negative energy supply shock from the Middle East conflicts and a positive demand shock from artificial intelligence that is also fuelling inflation.

"The combined impact of these two forces is highly uneven across the world," Georgieva said, adding that the AI boom was bypassing many countries.

New IMF growth forecasts to be released during the Bangkok meetings will show the biggest growth downgrades will come in economies ravaged by war, Georgieva said. These include Ukraine, suffering significant damage to civilian and economic infrastructure, and Gulf countries hit by Iranian strikes and sharply reduced energy exports.

Georgieva did not indicate in her prepared remarks whether the IMF's latest World Economic Outlook would change the overall 2026 global growth forecast from the sluggish 3.0% rate forecast in July.

That forecast, which predicted a rebound to 3.4% growth in 2027, assumed the Strait of Hormuz would start to reopen in mid-July and return to pre-war conditions by March 2027. It assumed oil prices would average $89 a barrel in 2026 and $78 a barrel in 2027.

Georgieva said oil prices remain at $100 a barrel, with impaired refining capacity adding another $100 in "crack-spread" margins per barrel for key products including diesel. The winter heating season will boost demand even as natural gas supplies remain restricted by threats to LNG shipping through the Strait of Hormuz, she added.

"Even if the war in the Gulf were to end soon, the problem of high energy prices will likely persist for some time," Georgieva said, adding that Brent crude oil futures LCOc1 predict high oil prices through 2027.

Higher energy prices are pushing up inflation, policy rates and benchmark bond yields, she said, noting that US, German and Japanese 10-year sovereign yields are now at their highest levels since 2007, 2009 and 1996, respectively, and still climbing.

GROWING DEBT LOAD
Adding to the worries to be discussed by the IMF's 191 member countries next week is a growing public debt burden that is sapping growth and adding inflationary pressures, Georgieva said. The IMF says public debt is at the highest level since World War Two and is projected to exceed 100% of GDP before 2030.

Georgieva singled out advanced economies, led by the United States, as the "worst offenders" on debt loads, with debt-to-GDP ratios higher than emerging markets and low income countries.

Policymakers can no longer rely on higher growth rates alone to solve fiscal problems, she said.

"And yet we don't see decisive action in the high-debt advanced economies where the need of the hour is for credible medium-term fiscal consolidation plans, supported in some cases by upfront fiscal measures, including to take some pressure off monetary policy," she said.

After five-and-a-half years of above-target inflation, Georgieva said inflationary pressures were persisting, from the AI build-out, energy and food price shocks, tariffs, higher defense spending and higher debt service costs.

"Now may be a good time for a prudently hawkish bias in many countries' monetary policy," Georgieva said, adding that rate hikes by the US Federal Reserve, the ECB and the Bank of Japan were "highly appropriate."

In a fireside chat following her speech, Georgieva added that the "most important task" for monetary policy in the current environment is to focus on price stability and for central banks to communicate their resolve in maintaining it.

"They can only do it when central banks are independent, and when central banks resist pressure that may come from the fiscal side to ease the burden by basically stepping up, buying debt, making it so that the situation from the fiscal side eases," she said.

"I would call this monetary cowboys, running to the rescue of the fiscal agents, and my message is: please don't."

AI RISKS ABOUND
Georgieva highlighted other risks from AI, where investment as a share of GDP is likely to exceed that of railroads, the electricity grids or telecommunications infrastructure.

The rising economic and financial concentration puts pressure on AI companies to deliver productivity and earnings gains to justify lofty valuations, she said, warning that market disappointment could turn into "a far-reaching shock."

But she said IMF research suggests that AI, done right, could add a half percentage point of extra world growth annually.

AI preparedness is key, she said, including regulatory guardrails that "help manage AI's substantial perils, which include large-scale labor market fallout, serious cyber and stability risks and frontier models threatening to escape human control and run amok."

In addition to building fiscal strength, even at difficult political costs, Georgieva said governments should take other steps to boost growth, including reforms that would develop improved workforce skills, make corporate startups and wind-downs easier, boost energy security and streamline regulations.