The Stormont Executive is considering how to cope with public expenditure cuts totalling around £4 billion over the next four years.
Finance minister Sammy Wilson said the cuts present a "severe challenge" while First Minister Peter Robinson and Deputy First Minister Martin McGuinness said the figures were more severe than they had feared.
The Executive meets on Friday to consider its response to the cuts, which will represent a cut of around 40 per cent of the capital expenditure grant by the end of the current four-year spending programme
Reacting to the statement by chancellor of the exchequer George Osborne at Westminster, Mr Wilson said the cuts were most unwelcome but represented no great surprise.
"On the current expenditure side the Northern Ireland Departmental Expenditure Limit (DEL) budget will fall by 8 per cent in real terms by the end of the four year period," he said.
Department officials told The Irish Times this would translate into a figure of around £4 billion (€4.54 billion) by 2014-15.
"Given the inflation and pay pressures we face this is going to be difficult to manage. That is why I asked departments to produce savings plans early in our local budget process - to give them time to prepare for the tighter financial environment from April next year."
Referring to the capital investment programme, Mr Wilson admitted the outlook is "much more worrying".
The Executive has been keen to invest heavily in infrastructure projects after many years of relative neglect during the Troubles.
"The capital DEL budget will fall by 40.1 per cent in real terms by 2014-15. In addition, the biggest reduction will be in 2011-12 where our capital DEL will reduce by £342.7 million in real terms. We are going to have to take some very difficult decisions in terms of what projects to fund going forward - the reality is that we have much less money available than was envisaged under the Investment Strategy that was published as part of the previous budget," he said.
On the positive side the chancellor did announce a £200 million package of support and loans to help the crisis stricken Presbyterian Mutual Society.
Looking to the future, Mr Wilson added: "Over recent months I have been trying to prepare the people of Northern Ireland for such a settlement. I have also been working hard to prepare my Executive colleagues for the difficult decisions we now face. The fact is that we now know the actual outcome, we have a duty to take those difficult decisions. That is our responsibility, that is what we have been elected to do."
Mr Wilson has been warning his Executive colleagues from the other parties to "get real" in relation to the need to expenditure cuts. He returned to this theme in the immediate aftermath of the chancellor's statement in the House of Commons.
"If we delay or fail to agree a budget, the losers will be the communities we represent. Our schools, colleges, hospitals, health centres, indeed all publicly funded services, need certainty in their budgets as soon as possible. By working together, we can mitigate against the worst effects of the spending cuts."
He concluded: "The coming years will be challenging enough - let us show the leadership required to ensure they aren't made more difficult than necessary."
Sinn Féin said the cuts were "disastrous", while the SDLP branded them "devastating". The Greens said the cuts were: "reckless, vindictive and ideologically motivated". Alliance said the new financial arrangements were "very challenging" and would be compounded by welfare cuts.
The Ulster Unionists said: "Many people in Northern Ireland are going to face tough times, and it is our responsibility to do our best to alleviate their difficulties".
The Institute of Directors in Northern Ireland said: "We strongly urge the Executive to protect infrastructure plans which are vital to the local economy and to the maintenance of jobs, particularly in the construction sector, and to reflect the Chancellor's focus on improving education and skills. "