Definition: Capitalized interest
External debt - IMF
Capitalized interest is the conversion of accrued interest costs or future interest payments, by a contractual arrangement with the creditor, into a new debt instrument or the principal amount. The most common form of capitalization is the reinvestment of interest costs into the principal amount, either because of an explicit agreement regarding the specific debt instrument or as part of a rescheduling agreement. Frequently as part of a rescheduling agreement, some percentage of interest due during the consolidation period is converted, through an agreement made with the creditor, into principal.
International Monetary Fund (IMF), "External Debt Statistics: Guide for Compilers and Users; Appendix III. Glossary of External Debt Terms", Washington D.C., 2003