- Emerging markets must ensure their level of borrowing will be sustainable, warned Tao Zhang, the IMF's deputy managing director
- Financing costs may rise once global central banks tighten monetary policy, he added
Emerging markets should get their fiscal houses in order while monetary conditions remain loose, the International Monetary Fund warned.
Governments have to some extent taken advantage of lower interest rates and cheap financing costs, but when monetary and financial conditions normalize, financing costs could rise, said Tao Zhang, the organization's deputy managing director.
Many countries hold high levels of dollar-denominated debt so when global central banks gradually begin to tighten monetary policy, the dollar could strengthen. The recently signaled while the began discussions on tapering last month.
Developing economies must use their current funds "in a smart way [and] make sure public sector spending or new borrowings can be sustainable," Zhang told CNBC on the sidelines of the International Monetary Fund meetings in Washington D.C.
Last week, S&P Global Ratings also sounded a word of caution on the matter.
Many emerging markets, particularly and , haven't taken full advantage of global liquidity to clean up their sovereign balance sheets, the company's .
On the topic of Asian growth, Zhang said he believed China's could benefit the region, but he cautioned that participating countries must adopt economic strategies so their financing needs can be properly accommodated.