Before artificial intelligence supercharges global productivity, governments will have to deal with an unfortunate reality: The long-awaited economic windfall may be years away, while the bills are coming due now.
For Moody’s Ratings, the global AI productivity boom will be worth 1.5% annually, averaged out across 106 countries, according to a Thursday research note. But in the case of economic growth, governments might have to spend money to make more of it down the line. AI could have significant upsides for productivity, but countries will first have to navigate a complicated and expensive landscape as they create digital infrastructure and support disrupted workforces, Moody’s analysts warned.
The build-out to make AI adoption widespread will likely come with significant upfront costs. For countries that already deal with constrained public finances, AI’s capital costs could end up “sharpening the policy tradeoff between assuming higher near-term fiscal risk and delaying participation in AI-driven growth opportunities,” the analysts wrote.
To be sure, AI adoption could come with some serious fiscal benefits for governments, including higher growth, stronger corporate and wealth tax receipts, and sharper tax administration. AI-powered digitalization could also plug compliance gaps, potentially adding up to 1.3% of GDP in revenue for countries with weak enforcement, according to Moody’s, citing IMF data.
But the note cautioned against treating AI as an “immediate fiscal windfall.” Before productivity fully kicks in, governments face upfront costs that could strain budgets already burdened by post-pandemic debt. Government spending explicitly earmarked for AI remains modest—often only a fraction of a percent of GDP—but a sea of hidden costs could make the transition much more difficult for budgets to handle.
For the U.S., the stakes of this transition are uniquely high. As a primary hub for the global AI infrastructure boom, the U.S. is poised to capture a significant portion of the projected $3 trillion in data-center-related investments over the next five years, as projected by Moody’s. However, this leadership comes with a steep entry fee: massive demands on power grids and digital connectivity that require enormous spending before productivity gains ever hit the bottom line.
