The drop was largely due to a sharp rise in imports, including fuel, food and capital machinery, offsetting strong exports driven by clothing, a senior central bank official said.

The central bank projection shows foreign exchange reserves fell to $10.85 billion in the fiscal year through June 2012 from $10.91 billion the previous year. 

Bangladesh’s trade deficit widened 49 percent to $7.69 billion in the last fiscal year, from $5.15 billion the year before, due to soaring fuel and food import costs. The central bank has said it expects the trade deficit to widen further, to $8.84 billion in the year to June 2012.

Another factor was sluggish growth of remittances from more than seven million Bangladeshis working overseas amid political upheavals in North Africa and signs of a slowdown in the western world. 

Strong remittances, a key foreign exchange earner for the $100 billion economy, helped offset the trade shortfall and have kept the overall balance of payments in surplus in recent years.

But the balance of payments swung into a deficit in the July-August period and the trade gap is widening. 

The local currency taka continues to fall against the US dollar, further fueling inflation and import costs.

Bangladesh is targeting exports of $26.3 billion this fiscal year, up 15 percent from 2010-11, much slower than the blistering 41.5 percent pace of growth seen last year. 

The central bank expects remittances to reach only $12.56 billion in the current fiscal year from $11.6 billion the previous year.