External Debt Law and Legal Definition

External debt is a country's debt which is to be paid to creditors outside the country. External debt may be paid to private commercial banks, governments, or international financial institutions such as the IMF and World Bank.

The key elements of external debt are :

actual current liabilities including principal and interest which are outstanding;

debt liabilities must be between a resident and nonresident;

the debt should be current and not contingent.

Contingent liability, which is an arrangement for which one or more conditions have to be fulfilled, is not included in external debt. Residence is the place where their economic interest are located and not their nationality.

The classification of external debts varies from country to country. Generally, external debts are classified under four heads. They are, public and publicly guaranteed debt, private non-guaranteed credits, central bank deposits, and loans due to the IMF.

Gross external debt is the outstanding amount of those actual current liabilities that require payment of principal and/or interest by the debtor at some point in the future and that are owed by residents of an economy to nonresidents.