The negative GDP growth rate recorded inthe first quarter of FY 2016/17 is indicative of the recentdifficulties that Uganda has faced in achieving the rates ofgrowth required to enable the country to fulfill itsaspirations. In the period from the 1990s to 2010, Ugandaachieved average annual rates of economic growth of aroundseven percent, far higher than many peers. The sustainedgrowth was the result of macroeconomic stability,post-conflict rebound, and market and institutional reformswhich transformed Uganda from a failed state to one of thefastest growing economies in the world. However, the averageannual growth in the five-year period to FY 2015/16 hasdecelerated to 4.5 percent. In sharp contrast to the earlierperiod, this is significantly lower than the average raterecorded by low income countries in the same period. Thedecline since 2011 is partly related to the increasinglyvolatile external environment and partly to domestic policyslippages. Policy frameworks held up well during the 2016election cycle, but serious strains related to the impact ofthe drought on agriculture and of the civil strife in SouthSudan are now materializing. It is important to ensure thatthe fiscal impact of these shocks does not transmit intomacro policy slippages, with past experiences showing howdamaging such slippagescan be to growth. In order to returnto the levels of economic growth recorded in the immediatepost-reform era, it is vitally necessary to address bindingconstraints and to transform the economy to facilitate theachievement of higher levels of productivity throughdiversification into a more resilient range of economicactivities. As with previous editions of this update, theeighth Uganda Economic Update provides an analysis of thecurrent state of the economy, while also focusing on aparticular subject of significance. In this update, thefocus is on the state ofthe financial system, with ananalysis of the means by which this system can be leveragedto accelerate growth and development through higher levelsof financial inclusion. A well-functioning financial sectorenables financial institutions to provide affordable creditand other financial services to a greater proportion of thepopulation. This encourages the emergence of new businessesand facilitates the growth of existing businesses. At thehousehold level, it enables tosmooth the patterns ofconsumption, to invest in human capital development, and toaccumulate physical and other assets. Together orindividually, all of these outcomes play a significant rolein the achievement of higher levels of economic growth andshared prosperity.