Warning about financing an AI boom on debt from the oldest international financial institution
Sunday, June 28, 2026, 15:08
The report published Sunday, June 28, by the Bank for International Settlements (BIS), the oldest international financial institution, raises alarm bells regarding the sustainability of the AI boom against the backdrop of rising public debt in the world's major economies.
The global economy is affected by a complex mix of vulnerabilities, including the tense fiscal situation, disruptions in supply chains, and the risk of high inflation. Although economic activity has remained resilient in recent months, authorities must act decisively to maintain stability, BIS assesses.
"Policy actions must mutually reinforce each other to avoid pressures on the world economy. Ultimately, success depends on solid fiscal and financial foundations," said BIS General Manager Pablo Hernandez de Cos.
The report highlights key pressures. Inflation has risen again, with BIS warning that frequent disruptions in supply chains increase inflation expectations among households and companies.
"The willingness to act, if central banks see that inflation expectations are becoming unanchored, is the main message I want to convey," the BIS chief told journalists.
He added that the recent agreement between the US and Iran to end hostilities and reopen the Strait of Hormuz is "good news" meaning that extreme scenarios will be avoided, although it will likely take time for the oil market to "normalize."
Risks of AI investments
Also, BIS drew attention to uncertainties regarding the sustainability of the current growth in investments related to artificial intelligence (AI).
Although AI has boosted confidence and supported growth through expectations of productivity gains, BIS warned that it increases fears about jobs, and disruptions in supply chains and intense competition could lead to the type of excessive investment seen in previous boom-and-bust cycles.
For central banks, AI investments likely raise fundamental questions about how the economy operates, although the BIS chief said that for now it would not be wise to be too strict about how institutions should react.
High asset valuations and signs of investor complacency have left bond markets more fragile, while financing the AI boom is increasingly debt-dependent.
At the same time, record public debt levels and the dominance of highly leveraged hedge funds in sovereign debt markets have created "a new financial stability nexus" that presents increasing risks.
De Cos said the BIS message is "urgent" regarding the need to reduce debt levels in key economies, because "currently debt is high and is being financed through non-bank financial intermediaries."
BIS calls on officials to prioritize price stability, ensure fiscal sustainability, coordinate and strengthen supervision beyond the banking sector, and adopt structural reforms.
