Heavily indebted industrialised nations must take swift action to cut debt in both the public and private sectors so as to prevent a new disaster, the Bank for International Settlements said yesterday.

And emerging markets should watch against falling into the same trap that triggered the recent financial turmoil, the bank for central banks warned, pointing out that property prices and private sector debt have been soaring in the red-hot economies of China, Brazil and India.

“Fiscal authorities need to act quickly and decisively before disaster strikes again,” said the BIS in its annual report.

“In the countries that were at the centre of the crisis, those imbalances include the lingering indebtedness in the private sector – households as well as financial and non-financial firms – which must be cut to levels well below those seen in the middle of the last decade,” it noted.

In addition, countries that have been pursuing growth through leverage should ditch the strategy for a more conservative approach.