The British government has been formally alerted that Northern Ireland's power-sharing administration is on track to go into the red by the end of this financial year in April.
The warning was given by the head of Northern Ireland's Civil Service, who has the role of accounting officer for the Stormont Executive.
Dr Malcom McKibben wrote to the Treasury in London, the UK's economic and finance ministry, which maintains control over public spending and sets economic policy.
For several months there has been a stand-off among ministers in the executive about how to divide a reduced level of funding provided by Westminster.
Part of the difficulty is the refusal by the two nationalist parties, Sinn Féin and the SDLP, to implement a version of the welfare cuts in line with British government policy.
Stormont is facing a shortfall of more than £200m in its budget for the current financial year.
This consists of £90m in fines, imposed by the Treasury due to the executive's failure to implement welfare reforms and more than £100m in other reductions.
In recent weeks several sectors including the PSNI, the Police Ombudsman's Office and schools and universities have detailed how jobs will be lost and services reduced as a result of reduced funding from Stormont.
The PSNI Chief Constable this afternoon delivered a stark warning about how budget cuts will affect policing in Northern Ireland.
Speaking to a public session of the Policing Board, George Hamilton said less than 100 days after his appointment he is being asked to implement a 7% budget cut.
He warned the constantly changing budget picture makes planning almost impossible and said the reduction in funding from the executive will fundamentally change how and where policing is delivered.
Detailing the likely effects, he said there will be less visible frontline policing, there will be fewer police officers and the PSNI's ability to deliver will be reduced.
He said that 300 temporary workers will not have their positions renewed at the end of the year - almost one third of them in the Historical Enquiries Team, which is to be closed at the end of the year.
Giving his assessment of the impact on future planned cuts, he said it will result in a police service that is unrecognisable with virtually no preventative capability and that neighbourhood policing would be eliminated in all but a small number of the most vulnerable neighbourhoods.
