I was watching this video and since it's a bit oversimplified I wanted more information.

I was curious because internal debt is in the local currency from local lenders, while external debt is in a widely-used currency from foreign lenders.

Technically the government bonds market has foreign and local lenders so are govt. bonds both external debt and internal debt? At the same time, the bonds are traded in local currency, I assume, so are govt. bonds internal debt then?

If someone could clarify it would be much appreciated. Thanks so much for your time!

  • $\begingroup$ It may depend on the writer, but you could say internal debt is owed to local lenders and external debt to foreigners, while saying local-currency debt is denominated in the domestic currency and foreign-currency debt is denominated in another currency. Clearly you can combine these in four ways, such as "external local-currency debt" $\endgroup$
    – Henry
    Commented Jun 28, 2020 at 7:37
  • 1
    $\begingroup$ @Henry Please post answers as answers. $\endgroup$
    – Giskard
    Commented Jun 28, 2020 at 11:00

1 Answer 1


Here’s a website from the IMF that has guides on their definition of external debt: link to IMF webpage.

In the 2013 guide, on page 5, the definition is debt owned by foreign entities. So foreign-owned bonds count as external debt.

From a practical perspective, this definition has problems. Tax avoidance schemes typically rely on using international transactions, so determining the true locale of the beneficial owner of securities is difficult. The other major issue is that for developed country government bonds, being a foreigner offers no special treatment - they have exactly the same economic rights with respect to the bond as locales. As such, some people do not consider domestic currency bonds as being “external debt”, but that is using a new definition.


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