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calculator Mr Black said planned government savings would not bridge the gap
Public spending in Scotland is facing the biggest squeeze since devolution, a report from Audit Scotland has said.
Ministers have committed to 2% annual efficiency savings up to 2011, but the spending watchdog warned that would be insufficient to fill the shortfall.
Auditor General Robert Black said difficult decisions would be needed on other ways to reduce public spending.
The finance secretary said the report confirmed the scale of the financial challenges he expected for Scotland.
Mr Black's warnings came in a report which said the Scottish Budget - £34.7bn this year, compared to £17bn in 1999 - faced an unprecedented squeeze.
By 2013-14 it could be between 7% and 13% lower in real terms, according to the report.
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It said spending pressures had been 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.
Using the Scottish government's budget data and forecasts by the Centre for Public Policy for Regions (CPPR), the report calculated that if spending continued at its current level until 2013-14, the budgetary gap would be £1.2bn.
But the black hole could be as much as £2.9bn under the CPPR's worst-case scenario.
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."
Mr Black warned of an "urgent need" to improve the efficiency and productivity of public services in Scotland, alongside better information linking spending with actual service delivery, costs and performance.
Brian Taylor By Brian Taylor, BBC Scotland Political Editor Scotland, like the rest of the UK, is set for a period of spending constraint. This much we knew.
But the latest report from Audit Scotland goes further: much further. The message is elegantly and cautiously phrased. But there is no mistaking the tone.
Public bodies are being urged to rethink their spending priorities fundamentally.
In the report, the auditor general, Robert Black, makes three key points: severe spending constraint is on the way; efficiency savings alone will not be sufficient to make up the gap; the current approach tends to deliver economies only at the margins.
That is because staff costs form such a large part of the overall budget involved in delivering a particular service.
If that service continues, the scope for driving down costs remains relatively limited.
Audit Scotland is arguing for clarity over what is spent - and further efforts to enhance productivity.
You would expect nothing else from a spending watchdog.
But this report goes further, suggesting a priority-based approach to scrutinising spending.
In short, the public sector must question what it needs to fund - and how.
A substantive response to meet a substantial challenge.
"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," he said.
Finance Secretary John Swinney said the report confirmed the extent of the challenges he expected in the medium term "as a result of budget cuts from the Westminster government".
"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," he said.
"I am, however, in no doubt of the difficult spending choices ahead for the whole of the public sector."
Scottish Labour's Andy Kerr called for the government to respond to the report by dropping projects such as the Referendum Bill and the Scottish Futures Trust.
Mr Kerr said: "Let's not forget that the Scottish Government has £600 million more to spend than last year. It is therefore particularly disappointing that John Swinney is bringing forward a budget that will actively harm the economy.
"There is no justification for his decision to slash the housing budget or cancel the Glasgow Airport Rail Link.
"Perhaps worst of all the SNP are wasting resources on their own narrow Nationalist priorities; a National Conversation that nobody is listening to and preparing for a referendum the Scottish Parliament does not support.
"They need to concentrate on creating jobs and dump expensive vanity projects like the Scottish Futures Trust."
Jeremy Purvis, the Liberal Democrat finance spokesperson, said: "This is a barely concealed attack on the lack of strategic direction in the Scottish government's budget to tackle the looming reduction in budgets."
Derek Brownlee, the Conservative finance spokesman, said: "The SNP government needs to wake up to reality and Alex Salmond in particular must stop misleading the public by claiming that the SNP can prevent spending cuts."
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