pressures

Economists are cautiously optimistic that advances in artificial intelligence could boost productivity across major economies, potentially helping governments manage soaring debt. Debt levels in most rich nations already exceed 100% of GDP and are projected to rise further due to ageing populations, higher defence spending, climate commitments, and rising interest payments.

U.S. policymakers, in particular, see AI as a potential driver to lift post-2008 productivity and free workers for higher-value tasks. Yet experts warn that even a strong AI-driven growth surge would not fully offset the structural pressures on public finances.

AI’s Potential Impact on Public Debt

The OECD and economists working with Reuters estimate that a productivity boost from AI could lower projected debt in OECD countries by up to 10 percentage points by 2036. That would reduce the expected rise from roughly 150% of GDP to around 140%, still sharply higher than current levels of approximately 110%.

In the U.S., best-case scenarios suggest debt could rise to 120% of GDP over the next decade instead of 100%, with one economist projecting little change. The key variables include whether AI creates more jobs than it displaces, whether firms pass productivity gains to workers via wages, and how governments manage spending.

Demographics and Limits

Demographics remain a central constraint. Ageing populations and entitlements tied to them are the root causes of long-term debt growth. Economists note that even with a productivity surge, labour shortages and slower immigration could offset AI gains. Countries like Italy and Japan may see smaller benefits from AI due to lower adoption rates and smaller sectors that can leverage the technology.

Fiscal Uncertainty

AI could raise government revenues through higher productivity and wages, but the effect is uncertain. If automation primarily benefits profits and capital rather than labour, fiscal gains could be limited. Additionally, public spending may rise alongside growth, dampening potential debt relief. Social security and other entitlement programs, indexed to wages, will continue to pressure budgets regardless of AI-driven efficiency.

Interest rates and debt servicing costs add another layer of uncertainty. Economists warn that recessions or financial shocks could prevent AI-driven productivity gains from providing timely relief.

Analysis

AI offers a potential “breathing room” for overstretched economies, buying time for governments to tackle structural deficits. Even if growth rises to 3% in the U.S. through 2040 above Federal Reserve expectations it will not solve fundamental fiscal challenges.

Economists stress that AI is a supplement, not a replacement, for fiscal reform. Rising productivity may help governments manage debt growth more sustainably, but without structural policy adjustments addressing demographics, entitlement programs, and spending priorities, the debt trajectory remains precarious.

Ultimately, while AI could improve efficiency and output, it is unlikely to carry the heavy lifting required to stabilize public finances on its own.

With information from Reuters.

Cable seen by Al Jazeera says the US ‘strongly objects’ to the island nation seeking support for ICJ’s landmark climate ruling.

The United States is urging governments to pressure Vanuatu to withdraw a United Nations draft resolution supporting a landmark International Court of Justice (ICJ) ruling that countries have a legal obligation to act on climate change.

A US State Department cable seen by Al Jazeera on Saturday says that the Trump administration “strongly objects” to the proposed resolution being circulated by the Pacific island nation of Vanuatu in support of last year’s ruling by the ICJ – the UN’s top court.

The Associated Press news agency, which also reported on the cable, said that it was circulated to all US embassies and consulates this week, shortly after Vanuatu announced it was putting forward the draft UN resolution for consideration.

“We are strongly urging Vanuatu to immediately withdraw its draft resolution and cease attempting to wield the Court’s Advisory Opinion as a basis for creating an avenue to pursue any misguided claims of international legal obligations,” a copy of the cable seen by Al Jazeera states.

The ICJ’s 15 judges considered tens of thousands of pages of written submissions and two weeks of oral arguments during the court’s biggest-ever case, before delivering their verdict last year that states have a legal obligation to act on the “existential threat” of climate change.

The ICJ case took place after Vanuatu won the support of 132 countries in the UN General Assembly, which can request opinions from The Hague-based court.

It also came as the Trump administration has sought to undo US action on climate change, both at home and at the UN.

The US cable claims that Vanuatu’s proposed UN resolution in support of the ICJ opinion was based on “speculative climate models to fabricate purported legal obligations that seek to assign blame and encourage baseless claims”.

Louis Charbonneau, Human Rights Watch’s director at the UN, urged support for Vanuatu’s draft resolution on Friday, saying “governments should live up to their obligation” to protect human rights around the world by protecting the environment.

“Responsible governments shouldn’t allow themselves to be bullied by those that reject the global scientific consensus and continue to support reliance on harmful fossil fuels,” he said.

Vanuatu’s UN Ambassador Odo Tevi, who said his country wants a vote on the resolution by the end of March, has stressed that it would ensure that the clarity in the ICJ ruling “strengthens global climate action and multilateral cooperation”.

An article in Vanuatu’s Daily Post newspaper said that the draft resolution has been endorsed by countries including Barbados, Burkina Faso, Colombia, Jamaica, Kenya, the Marshall Islands, Micronesia, the Netherlands, Palau, the Philippines, Singapore and Sierra Leone.

Many of these countries are already experiencing the worsening effects of climate change, including increasingly severe storms.

Trump, who has promised to “drill, baby drill” for oil in his second term, has withdrawn the US from UN climate bodies, including the UN’s top climate change treaty body, the UN Framework Convention on Climate Change (UNFCCC).

Trump has also threatened to impose sanctions on diplomats who voted for a levy on polluting shipping fuels at the International Maritime Organization (IMO).