Ontario's government spending watchdog says there is "significant risk" the Liberals will not be able to eliminate a $4.3 billion deficit next year as promised.

In his fall economic statement two weeks ago, Finance Minister Charles Sousa said he would dip into a reserve fund to ensure a balanced budget in 2017-18.

But the Financial Accountability Office is casting doubt on Sousa's ability to meet the target. 

"The Province's plan to balance the budget continues to rely on optimistic assumptions for revenue growth and program spending restraint," said the temporary Financial Accountability Officer, David Wake, in a report released on Monday.

"There is significant risk that the government may not be able to eliminate the deficit in 2017-18, nor maintain a balanced budget going forward," wrote Wake. 

The arms-length agency says the government's revenue projection is $2.8 billion higher than its estimate for 2016-17, and $5.2 billion higher by 2018-19.

The FAO says the government has a variety of tools that it could use to "temporarily improve" the budget to balance in 2017-18.

But it warns maintaining a balanced budget beyond next year "will likely require additional measures to raise revenues or reduce expenses," which would mean new or increased taxes and cutting government programs.

The finance minister is standing by his projection of a balanced budget in 2017-18.

"Despite a challenging economic climate, Ontario's economy continues to grow and we have beaten our deficit reduction targets seven years in a row and we are on track to meet our deficit target yet again," Sousa said in an emailed statement.‎

With files from CBC's Mike Crawley