Economic recovery and how to regain Kenya's lost image pose new policy challenges for the new coalition Government, analysts say.

As the new political establishment -created through a constitutional amendment last week-shapes up in the next few days, analysts reckon there is bound to be more rapid foreign and local investments as investors and development partners regain confidence in the country.

A new government comprising President Kibaki's PNU and Raila Odinga's ODM, analysts say, has to settle down fast and sort out the country's economic problems in the face of a slowdown caused by post-election violence.

According to Mr Tiberius Barasa, a policy analyst at the Institute of Policy Analysis and Research, policy responses would determine how fast the economy will recover as well as ability to translate arising gains into better standards of living for 46 per cent of Kenyans who live in absolute poverty.

The political unrest is said to have frittered away chances offered by the rapid economic growth (7 per cent in 2007) which would have bettered the well being of Kenyans, who are grappling with high commodity prices.

Inflation hit a 14-year high in February rising to 19.1 per cent in February from 18.2 per cent.

Rising food and fuel prices look set to be the key drivers of the living costs, with analysts warning that inflation rates above the 25 per cent mark does not sound remote.

Economists said there may be a need to tighten belts, including a cut on Government spending and postponement of high cost projects slated for the current financial year to help the economy register significant growth.

Finance minister Amos Kimunya who had put the losses following the dispute at Sh60 billion in January alone said there was need to check on spending for a successful recovery strategy over the next few months.

Last week, President Kibaki announced that at least Sh31.5 billion would be required for economic reconstruction. The bulk of the money will be sourced from the international community and will be used for national reconciliation, security and peace building.

Mr Kibaki told ambassadors and High Commissioners from donor nations that the Government had re-allocated Sh1.25 billion from the current budget for that purpose.