Sri Lanka has been left with a weak and unstable economy owing to 25 years of terrorism, poor infrastructure development and inadequate attention to developing the domestic economy, he told parliament at the start of his speech to present the government's budget for 2008.
"The Tigers are not prepared to lay down arms and come for peace talks," Rajapakse said.
"In order to bring about a political solution and rescue the Tamil people, we invariably need to defeat terrorism.
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Rajapakse said that in recent months the military has been able to score many successes against the Tigers and secure much of the eastern region.
Despite the war, last year's economy growth rate was the highest the country had achieved, he said.
Although the government has been forced to in crease defence spending in order to strengthen the military to fight the Tigers, it had not neglected economic development nor the people's welfare, Rajapakse said.
Defence spending went up to 117 billion rupees last year from 63 billion but Sri Lanka's defence spending was still less than 3.5 percent of GDP, below that of many other countries.
Instead of reducing state activity and embracing globalization, Sri Lanka decided to forge its own path in 2006 when the present government assumed power to strengthen the domestic economy and agriculture, he said.
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