CAIRO - Egypt's domestic wheat crop is expected to rise sharply in 2012/2013, a top official said on Sunday, adding that the state had not cut funds for overall grains purchases despite a rising budget deficit and falling foreign currency reserves.

Nomani Nomani, adviser to Egypt's supply minister, told Reuters that the higher local wheat production was due to incentives offered to farmers. Nomani, who until last week was in charge of imports at state grains supplier GASC, said he expected local wheat to increase by "at least 500,000 tonnes in 2012/2013, if not more, raising the amount of local wheat to 4.2 million tonnes". The Egyptian financial year runs from July to June.

A steady fall in Egypt's foreign currency reserves to $13.6b in Jan from $36b before the 2011 revolution has raised concerns on international commodities markets.

Wheat imports since Jan. 1 have been sharply lower than levels in the same period last year. Nomani acknowledged the government's problems but said the state, which has prioritised food imports, was maintaining its funding for both domestic and foreign purchases.

"The state has not at any point reduced its payments or failed to deliver to us financial guarantees," he said, adding that the government had budgeted 11b Egyptian pounds ($1.6 b) for domestic purchases.

"We have proper planning. We were aware of the conditions the state is going through and we made a list of factors to rely on for securing our essential supply of wheat, including offering attractive incentives and prices to local farmers," he said. ($1 = 6.7333 Egyptian pounds)