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 Federal Reserve recently signaled its commitment to monetary tightening while the European Central Bank 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.