* State prioritises wheat imports, Egyptian output up -official
* Political, economic turmoil tough for importers - banker
* Wheat stocks well down on last year
* Egypt wants to reopen talks on IMF loan
By Yasmine Saleh and Sarah McFarlane
CAIRO/LONDON, Feb 24 (Reuters) - Egypt's wheat imports are sharply down this year as it endures economic and political crisis, but state and private buyers insist they still have funds to keep the nation supplied with its staple bread.
Egyptian officials and traders acknowledge the government's problems with a rising budget deficit and falling currency reserves, but say the state is allocating priority financing for wheat imports. They are also pinning some of their hopes on an increase in domestic production.
Foreign traders and financiers remain sceptical, pointing to a big drop both in wheat stocks - to about three months' supply from over seven last October - and in the number of grains ships arriving at Egyptian ports.
This, they believe, is evidence that the state grains supplier, the General Authority for Supply Commodities, (GASC) is facing problems in maintaining imports.
"It's an ongoing concern that the political and economic turmoil is making it a challenge for GASC to import wheat," said Karel Valken, global head of trade and commodity finance at Rabobank.
Egypt has a history of bread riots but maintained supplies of heavily subsidised flat loaves - which sell to the poor for just 5 piastres (less than 1 U.S. cent) - throughout the popular uprising that overthrew president Hosni Mubarak in 2011.
The man who until last week organised Egypt's state wheat purchases, Nomani Nomani, dismissed any suggestion that the government had failed to produce promised funding or guarantees to ensure that shipments could go ahead.
"The state has not at any point reduced its payments or failed to deliver to us financial guarantees," Nomani, who now advises the supply minister, told Reuters on Sunday. As vice chairman of GASC, Nomani was arguably the most powerful man on the global wheat market as Egypt is traditionally the world's biggest importer of the grain.
President Mohamed Mursi's government faces daunting economic problems. The Egyptian pound has fallen more than 8 percent since the start of January, and foreign currency reserves have tumbled to $13.6 billon in January from $36 billion before the fall of Mubarak.
The pound's drop is putting a heavy strain on the government budget as it has pushed up the cost of state subsidies on energy and food, much of which is purchased in dollars.
At the same time detailed negotiations for a $4.8 billion loan from the International Monetary Fund have yet to get underway, and Egyptian politics are in turmoil due to disputes between the ruling Islamists and opposition parties over a new constitution and parliamentary elections due to start in April.
Nevertheless, private traders discount talk of delivery disruptions, payments problems or shortages so far.
"If you're asking about any delays in shipping schedules due to contractual liability performance on GASC's side due to a shortage of foreign currency, the answer as of today, as we speak, is no," said Hassan Abdel Fadil, chief executive of Egyptian trader Venus.
"It's obvious to the entire world that there is pressure on the dollar in Egypt, but so far they've been doing well," Fadil told Reuters on Saturday.
"There is a good local supply, both on the private side and on the GASC side. People keep talking about shortage of stocks - no, it's not true, neither on the private nor on the GASC side."
Nevertheless, the figures are striking. GASC has bought 235,000 tonnes of wheat since Jan. 1, about a third of what it purchased in the same period a year earlier.
And dry bulk vessels over 50,000 deadweight tonnes (dwt) - the kind of ships used to carry wheat - are arriving in sharply reduced numbers.
Altogether 30 have called at Egyptian ports from the country's main wheat supplier countries in the January to February period. This is down from 59 vessels in the same period last year, ship-tracking data from maritime intelligence publisher IHS Fairplay showed.
Egypt normally buys strategically to ensure it has wheat stocks equal to at least six months' consumption in its silos. By contrast, the government said last week that it has stocks to last until May 29, or just over three months.
The cabinet said this would rise to about four months under current international contracts, but this falls well short of the almost seven months' cover in October last year.
Such figures encourage a belief that the dollar shortage is forcing Egypt to import less and make up the shortfall from reserves.
"We've done some business there in the last few weeks and didn't have too much trouble getting paid, but our normal buyers now are saying they are going to live on the stocks they have on hand for the next little while," said Wayne Bacon, president of grain trader Hammersmith Marketing, which is involved with private importers. "They're waiting to see if they can get any foreign currency to pay for things."
Egypt faces a huge task in feeding its people. Most of its territory is desert, and what little land that can be cultivated by using the waters of the Nile is under heavy pressure from development. With its population of 84 million growing fast, buildings are springing up on agricultural land.
Nomani, who left his job at GASC saying only that he had been promoted, said measures to boost domestic production were paying off at a time of difficulty for state finances.
"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.
Nomani expected local wheat production 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".
This would mark an impressive rise from 2.6 million in 2010/2011, but overall needs are greater.
Egypt imports about half the 18.8 million tonnes of wheat it consumes a year, with business split roughly evenly between private importers and GASC. The U.S. Department of Agriculture had estimated Egypt's imports at 9.5 million tonnes in 2012/13.
Nomani said the government had budgeted 11 billion Egyptian pounds ($1.6 billion) for domestic wheat purchases this financial year, which runs from July to June.
Nevertheless, the state is short not only of dollars but also domestic currency. The budget deficit in the last six months of 2012 was 5.1 percent of economic output, up sharply from the previous year.
Planning Minister Ashraf al-Araby predicted the deficit could hit 10 percent of GDP in the financial year to June - a level Egypt cannot afford without outside help.
Cairo's main hope is completing the IMF deal that was agreed in principle last November but put on hold during street violence the following month.
Admitting that foreign direct investment had all but dried up, Araby said the government planned to invite an IMF mission to Cairo within a week.
The funds are sorely needed. Egypt suffered bread riots in 1977 when the state tried to curb subsidies, and a dive in the pound in 2003 forced up the food subsidy bill by 40 percent. Riots erupted again in 2008 over high food prices and low wages.
"I don't think they can afford to jeopardise their subsidies at the moment," said Hammersmith's Bacon. "They're going to have to find funds to finance their wheat and sugar purchases because there's just too many people in the country who can cause a lot of trouble if they don't."