A spending watchdog has warned the Scottish Government could face a £3 billion budget black hole in three years time if spending continues at present levels.
Efficiency savings alone will not be enough to fill the gap and the squeeze will force "difficult" decisions on ministers and the wider public sector.
Auditor General Robert Black warned of an "urgent need" to improve the efficiency and productivity of public services in Scotland. He called for the public sector to have better information on spending and productivity, and for two Holyrood committees to organise wide-ranging performance reviews of major policy areas.
The warnings came in an Audit Scotland report which warned that Scotland's public sector is under the greatest financial pressure since the start of devolution.
Mr Black's report said the Scottish budget - £34.7 billion this year, compared to £17 billion in 1999 - faces an unprecedented squeeze.
By 2013-14 the budget could be between 7% and 13% lower in real terms, posing a "significant challenge" to the public sector.
His report highlights spending pressures made worse by a smaller budget, an ageing population, the rising cost of free public services, a backlog of maintenance on roads and buildings, and extra pressures on public services through rising unemployment.
One example given is property registration body Registers of Scotland.
It had budgeted for a £4 million surplus last year but instead had an £11 million operating deficit when the property slump hit its income from surveyors, solicitors and estate agents.
Using Scottish Government's budget data and forecasts by the Centre for Public Policy for Regions, the report calculates that if spending continues at its current level until 2013-14, the budgetary gap would be £1.2 billion but could be as much as £2.9 billion under the CPPR's worst-case scenario.
The Government is already committed to 2% annual efficiency savings up to 2011 but this will not be enough to bridge the gap.
Mr Black said: "The Scottish Government's efficiency programme is reporting significant savings, but the reductions required over the next few years will not be met just by the 2% efficiency savings, and difficult decisions will be needed on other ways to reduce public spending."
His report warns that the public sector needs better information linking spending with actual service delivery, costs and performance.
Mr Black said: "Most of the public sector needs to get much better at measuring and improving its productivity, but all too often we find that the basic information is not there."
Finance Secretary John Swinney said the report confirmed the scale of the challenges posed by "budget cuts from the Westminster Government".
It also reinforced the need for Scotland to be responsible for tax and spending decisions, he said. Mr Swinney went on: "Ministers are bringing forward a budget for 2010-11 to invest in Scotland's priorities as we wrestle with a £500 million cut from Westminster.
"Every part of the public sector must deliver maximum value for the public purse and we have taken steps to simplify the public sector, cut the number of public bodies and make services more responsive."
