(Bloomberg) -- Ukraine’s finance chief said a $61 billion US aid package helps cover budget gaps for this year, though the nation’s fiscal outlook for 2025 is “very uncertain” given the duration of the war with Russia. 

Finance Minister Serhiy Marchenko said that $7.8 billion of the funding approved Wednesday by President Joe Biden will be earmarked for budget needs. But a spike in military spending and uncertainty over how long the war will last could trigger a widening gap for next year. 

“We see great financial constraint and stress because of additional military expenses,” Marchenko said in an interview on Bloomberg Television on Wednesday. 

Biden said assistance to Ukraine would begin to move within “hours” after he signed the package on Wednesday. But after six months of stalling over political infighting, dwindling supplies of ammunition and manpower have sapped Kyiv’s war effort and shifted the initiative to the Kremlin, which has made advances.  

“The situation is very dramatic and dangerous on the battlefield,” Marchenko said, citing the shortages.

European aid for Ukraine failed to fill the gap left by a delay in US support, underscoring the urgency of the US funding, according to the Kiel Institute. In January and February 2024, European countries allocated a total of about €6 billion ($6.4 billion) in aid, almost all of it for the military, the institute said in the latest update to its Ukraine Support Tracker.

“The European aid in recent months is nowhere near enough to fill the gap left by the lack of US assistance, particularly in the area of ammunition and artillery shells,” the report said. The US aid package “is therefore crucial.”

The influx of US aid will offer an immediate boost to Ukraine’s budget, with funds earmarked for fiscal needs such as salaries for teachers, social and humanitarian expenses and the war-battered nation’s health-care facilities, Marchenko said. The ministry had to increase defense spending by $4 billion in the first quarter, according to the minister.  

And while an expected additional budget gap for military needs this year can be covered with “domestic resources,” the 2025 outlook is murkier. Should the war continue at its current pace next year, Kyiv could run an “additional” deficit of as much as $12 billion, Marchenko said. 

As Russia ratchets up its attacks on Ukraine’s energy infrastructure, some 80% of the country’s thermal generation has been taken out over the last few months, Marchenko said. Ukraine is seeking further resources to rebuild and bring in technology to back the country ahead of next winter. 

“I believe that support of our partners can help us to boost necessary energy and to craft this will to fight and to liberate our country,” Marchenko said. 

--With assistance from Reinie Booysen and Andras Gergely.

(Adds data on European and US aid in sixth and seventh paragraphs)

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