The Minister for Public Expenditure and Reform says any new deal on public sector pay must be fair, yet affordable.
A report by the Public Service Pay Commission is expected to be published by the end of May.
This will then trigger talks on a new deal to replace the existing Lansdowne Road Agreement.
Minister Paschal Donohoe said: "I believe the negotiations are going to be incredibly challenging. There is a huge level of expectation but there's also a huge level of need within our public service.
"The need that I am clear on though is that we have to have an agreement that is affordable [and] that is fair to everybody."
Minister Donohoe said extending the Landsdowne Road Agreement is the fairest way to ensure this.
On the level of expectation from unions, Minister Donohoe said: "I think it's understandable on behalf of unions [...] We'll deal with the realism as part of the negotiations taking place."
Earlier this month, public servants say their pay has now fallen behind the private sector on average.
The Public Service Executive Union (PSEU) - which represents executive grades in the public sector - will be looking for an additional €1.6 billion for civil servants, including €1.4bn in pay restoration.