Harnessing Artificial Intelligence’s Potential in the Middle East and Central Asia

Artificial intelligence (AI) has the potential to raise productivity, strengthen medium‑term growth, and support economic diversification across the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) and the Caucasus and Central Asia (CCA). However, prospective gains are uneven, reflecting substantial cross‑country differences in AI exposure, preparedness, and access to advanced technologies. Without targeted policy action, AI risks widening existing development and income gaps. This paper argues that AI‑related policy priorities should be closely aligned with countries’ levels of preparedness. Economies with strong digital infrastructure, skills, and institutional capacity should focus on strengthening digital innovation ecosystems and adapting legal and regulatory frameworks to support and govern rapid AI diffusion. Countries with more limited preparedness should prioritize expanding basic digital infrastructure and investing in human capital to capture early productivity gains while building the foundations for more advanced AI adoption. The paper also assesses large‑scale AI infrastructure investments underway in parts of the MENAP region aimed at positioning countries as global AI‑service hubs. The success of these strategies depends critically on adoption capacity in AI‑service‑importing countries and on effective cross‑border regulatory coordination, particularly with advanced economies. At the same time, AI poses material macro‑financial and social risks. Rapid growth in AI‑related investment may create financial stability vulnerabilities if adoption falls short of expectations. AI‑driven automation and skill‑biased technological change are also likely to disrupt labor markets, increasing risks of job displacement, skill mismatches, and inequality—particularly for women and younger workers. These considerations underscore the importance of active labor market policies and well‑targeted social protection to support an inclusive AI‑driven transition.