AI credit positive for sovereigns: Moody's

However, the credit benefits will materialize only over the longer term, possibly beyond the coming decade. AI adoption could also raise political and social costs and institutional challenges, partially offsetting the credit-positive effects.

"The credit benefits of AI will be most tangible through increases or less pronounced slowdowns in productivity, and in particular countries facing shrinking labour supply and/or structural skills shortages will benefit from technologies that can perform human cognitive functions," said Christian Fang, a Moody's assistant vice president and analyst.

"Governments that use AI, including in interactions with the public and policy design, can also raise their effectiveness, strengthen their finances, and, potentially, lower the probability of shocks to their economies," added Fang.

Capturing the full benefits involves disrupting work and administrative practices, and establishing new economic and social connections that will take time, the report said.

It will also likely require large amounts of reliable data, adequate digital capabilities and technological literacy, as well as an environment that promotes innovation and the use of innovative technologies.

While these requirements mean that advanced, higher-rated economies are best placed to take advantage of AI, the technology also provides opportunities for developing economies to leapfrog some of the more advanced.

Finally, political risk may increase if governments struggle to manage the resulting socio-economic frictions, or if data misuse results in ethical and privacy challenges. However, governments can influence the pace of adoption and those with strong institutions can mitigate the negative impact, according to the report. – TradeArabia News Service