How does the sustainability of external debt impact the currency?

External Debt sustainability

In short if there is too much external debt then foreign investors will start to worry about the sustainability of the debt. Remember borrowing money from domestic investors is like borrowing from within your family - the country is neither richer nor poorer. However borrowing from foreign investors means that over time the country will be sending money abroad to service this debt and this may weaken the country over time.

If foreign investors panic they will sell the debt, which means selling the currency. If enough do this then the currency will depreciate until new foreign investors are tempted to buy the debt since it is now cheap given the currency fall.  This depreciation in currency will ultimately stop the selling pressure on the debt.