When you specify FROM EXTERNAL PROVIDER
in your command you are adding an Azure Active Directory user. If you want to add an AD user you can only do so while signed into an AD account. So option 1:
Use an Active Directory account: Make sure you are using an Active Directory account to connect to Azure SQL Database from PowerShell. You can use the "Connect-AzAccount" cmdlet to authenticate with your Azure AD account before executing the SQL statement.
Option 2: just create a local SQL account:
"CREATE USER [username] WITH PASSWORD = 'password';"