The tsunami-hit island is already creaking under the strain of high oil prices and double-digit inflation and his bundle of goodies comes with a US$ 50 million price tag – luxuries the war-torn country cant afford.
"I have decided to bring before parliament new budget proposals based on the 'Mahinda Chintanaya' (my philosophy)," he said after taking oaths as Sri Lanka’s fifth executive president. "I believe it is necessary to begin my term of office with the people's confidence in me intact."
Rajapakse, 60, who's skills lie in building and managing coalition partners, has not demonstrated that he was comfortable with issues of economic management.
His first move, he said earlier last week, would be to sanction fertiliser subsidies for rural farmers.
Such 'sweetners' highlight his biggest economic test – dispensing with handouts like fertiliser and fuel – and paying more attention to plug the worsening fiscal deficit, hovering around a high nine-per cent of gross domestic product.
"This will not be a popular move, but he will have to do it now, if he wants to achieve six percent growth," notes private economist, Sonali Dassanayake.
Instead, analysts say his immediate priority should be to implement the existing 2006 budget – which is pending before parliament – and portray himself as an investor friendly president to the business community.
The now defunct budget, made no financial provisions to implement a plethora of subsidies pledged in Rajapakse's manifesto.
"Attempts to include his manifesto will be fiscally irresponsible," notes Economist and CEO Frontier Research, Amal Sandaratne.
Rajapakse also faces the daunting task of translating the raft of subsidies into sound economic activity.
"As it is the budget next year was fiscally disciplined given the context which it was presented … investors don't like sudden jerks in policy statements, given the fact that Sri Lanka presented a budget two weeks ago," observes Chinthaka Ranasinghe, Head of Research John Keells Stockbrokers.
But voters from the Sinhalese majority who voted Rajapakse in, the economy, which grows on auto-pilot at five percent, is arguably of more direct concern than the peace process.
Sri Lanka's U$ 20 billion economy is heavily dependent on foreign remittances, clothing and tea exports and tourism.
The economy has expanded every quarter since the ceasefire was signed nearly three-years back, and a permanent peace deal with the Tamil Tiger rebels, is vital to achieve double digit growth.
"Rajapakse faces the same dilemma as Indian prime minister Manmohan Singh, who was backed by an alliance of socialists and communists," notes Murtaza Jafferjee, Managing Director J B Stockbrokers.
Singh's visions of a bold reform have been effectively scuttled by ruling alliance.
Rajapakse's alliance partner, the Marxist JVP, is against privatization and market liberalisation. They also see the bloated public sector as the engine for future growth.
"It is interesting to see if the JVP will take on a more active role, if they re-join the government," observes Economist and Chief Investment Officer at Boston Asset Management.
"I don't think he is against economic liberalisation, but he's unlikely do anything that involves shock therapy," quips Dassanayake.
-Mel Gunasekera: mel@vanguardlk.com
