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DHAKA, July 23 (Reuters) Bangladesh's foreign aid receipts in July-May of fiscal year 2005/06 dropped 10.5 percent compared with the year-earlier period, finance ministry officials said on Sunday.

The country received $1.03728 billion in foreign aid during the first 11 months of 2005/06, down from $1.1589 billion in the same period a year earlier, the officials said.

However, the country's net foreign aid receipts stood at $607.28 million in that period after repaying $430 million in debt. A year earlier, net foreign aid was $748.9 million.

Economists and analysts said the slowdown was partly caused by Bangladesh failing to fulfil conditions set by aid donors such as the World Bank and International Monetary Fund.

''If the government does not comply with the conditionalities, it is obvious that donors will not also disburse money,'' said Qazi Kholiquzzamn Ahmed, president of Bangladesh Economic Association.

Economists said that with the reduction of foreign aid, the government's borrowing from domestic sources had increased substantially.

''With government borrowing going up the banks will be under liquidity pressure which will affect private sector industrial initiatives,'' Ahmed told Reuters.

Analysts say the foreign aid flow to Bangladesh is unlikely to increase soon since overseas donors are watching the country's political situation ahead of the January 2007 parliamentary election.

REUTERS DKS RS1759