The black hole is being predicted as local authorities – who get money from the Government to fund the fire service – tighten their belts.
While no exact figures will be available until later in the year, Lothian and Borders Fire and Rescue Service is planning to have to make savings of 4.83m between 2011 and 2014.
A report on the situation, to be discussed by the fire board, warns that there will be "potentially direct service impact".
Cutbacks being looked at include offering staff early retirement and voluntary redundancy. Some services such as the fire control room along with back office functions may also be shared with police or ambulance.
A full review is now under way to identify possible savings but fire chiefs insist they are committed to a policy of no compulsory job losses.
Andy Fulton, chairman of the Lothian and Borders Fire Brigades Union, said: "At this stage there is no definite plan in place and the fire service are trying to identify how to make these savings without affecting the operations of firefighters, which is obviously something that would be of great concern.
"The concern is that at the moment the cuts identified do not come anywhere close to meeting the level of savings that are likely to be required."
National figures show that LBFRS is one of the most efficient services in Scotland, costing roughly 50 per head annually, compared to the Scottish average of 59.99.
This has been achieved while steadily bringing down costs, with 6.2m shaved off the annual budget over the last six years. These cuts, however, have left the service with very little scope to make further savings.
The impact of a pay freeze, which would have to be set nationally, is also to be looked at as part of the wide-ranging review.
David Millar, director of corporate services with LBFRS, said: "One of the biggest difficulties we face is that currently we operate a service that meets government guidelines.
"Each council contributes funding based on the number of firefighters, appliances and stations in their area, and so they may want to cut back on that to reduce their costs, but that would mean falling below these guidelines.
"There is very little wriggle room, because we have made substantial savings already.
"We have a budget in place for the next year, so we have a year's breathing space to look at this closely, and our primary aim is to ensure we can continue to deliver the front line service that is so vital across Lothian and Borders."
Councillor Mike Bridgman, convener of Lothian and Borders fire board, said: "All councils are under severe pressure to make cuts, and the reality is that every fire service in Scotland is going to have to look at ways of making savings over the coming years because of the recession.
"I am confident that the team at Lothian and Borders Fire and Rescue service will look at every possible way to avoid these cutbacks affecting the front line service we provide, and that is why the scrutiny committee will be meeting more regularly to look at every possible option open to them.
"We have already made significant cost savings in recent years, however, and are one of the most efficient services in Scotland, so unfortunately it will be very difficult to make substantial savings like this without it having an impact on the service."