The development and adoption of Artificial Intelligence (AI) is progressing rapidly with potentially profound implications for countries around the globe that extend far beyond technological innovation. AI is emerging as a transformative general-purpose technology with the potential to drive the development of new sectors and facilitate automation and efficiency improvements across a broad spectrum of tasks. At the same time, the increasing use of AI presents risks of dislocation, disruption, and instability as its impact spreads onto the labor market, changes the distribution of income, and accelerates innovation in the financial sector. The overall economic impact of AI remains a subject of debate and uncertainty. For instance, Acemoglu (2025) urges caution, whereas Aghion and Bunel (2024) present a more optimistic view. The IMF’s estimates suggest that AI could potentially raise global GDP growth by 0.1 to 0.5 percentage points annually in the medium term, depending on the degree of adoption and the extent to which AI complements or substitutes labor. About 40 percent of workers globally are significantly exposed to AI and about half of these workers could suffer negative effects from the introduction of AI. Financial markets are also changing fast as new products and financing options are expanding with algorithmic trading, decentralized finance, and virtual assets. This is introducing new risks to financial stability including potential higher volatility, opacity, and interdependency. Harnessing the power of AI while limiting its risks will hinge on the degree of preparedness of countries for its adoption, and the adequacy of their policy frameworks. IMF research emphasizes that AI’s impact on growth will depend on sectoral and country exposure to AI, access to cutting-edge hardware and data, and countries’ readiness for AI adoption. Most emerging markets score roughly in the middle in the IMFs AI Preparedness Index, showing areas of strength, but also significant gaps. The MENA region scores below emerging markets, while the GCC region scores above emerging markets and below advanced economies. The growth effect of AI in AEs could be double that in LICs due to the latter’s lower exposure and preparedness. These gaps reflect disparities in internet penetration, quality of education systems, extent of investment in the AI ecosystem, and regulatory frameworks. In this context, governments’ support for the development of AI and its responsible adoption through proactive policymaking can play an essential role in enhancing preparedness and ensuring that countries can harness AI for higher inclusive and sustainable growth. • Supporting the development of an AI ecosystem through data centers, research and development, upgrades to digital infrastructure, entrepreneurship, and education would help contribute to the AI transformation and enhance the ability of countries to benefit from it. • Preparing the macroeconomic policy frameworks to deal with the potential risks would go a long way in containing the potential disruptions of AI. This includes leveraging AI to improve tax collection and public services delivery, strengthening social safety nets to protect those left behind, adapting the education system to build and maintain an AI-ready labor force, and preparing financial policies and redesigning financial sector regulatory frameworks to adapt to the ongoing financial innovations.