Iraq has agreed to pay Egypt $408 million in cash to settle old debts owed by Baghdad from more than two decades ago, a government spokesman said on Thursday.
The debts date back to a period when United Nations sanctions following the 1990 Iraqi invasion of Kuwait blocked the payment of salaries that were due to hundreds of thousands of Egyptian labourers who worked in Iraq in the 1980s.
"The Iraqi cabinet decided that the finance ministry should pay the $408 million in original debts to Egypt," Ali Al-Dabbagh said in a statement. He said the move was part of Iraq's efforts to strengthen its relations with the international community.
Iraq's security and its oil-dependent economy have been improving following the years of conflict and instability triggered by the 2003 US-led invasion that toppled Saddam Hussein. Prime Minister Nuri Al-Maliki's government wants to foster better ties with Arab neighbours and foreign creditors.
Iraqi finances have improved post-Saddam.
In 2003, the country's external debt was $130-$140 billion but that went down to about $88 billion last year.
The Paris Club of 19 rich creditor nations agreed in 2004 to write off 80 per cent of roughly $40 billion in Iraqi debt.
Progress on debt forgiveness talks with non-Paris Club creditors remains uneven though the United Arab Emirates cancelled Iraq's debt in 2008. Estimates of Iraq's non-Paris Club debt vary but Kuwait, Turkey and Saudi Arabia are among the notable hold-outs.