Abstract:This paper utilizes a three‐gap model to evaluate the three macroeconomic constraints, domestic saving, foreign exchange and public sector resource availability, faced by Uganda as it attempts to rehabilitate and reconstruct its war‐shattered economy. Using 1987 as a base year, the resulting three‐gap equations demonstrate a sharp trade off between investment (economic growth) and capacity utilization under foreign exchange constraint. The model is simulated over the period 1988–92–a period closely corresponds to the Uganda's structural adjustment facility program as well as for the period 1993–97. The size of the foreign exchange gap, $634 and $545 per year during the first and second five years period, illustrates quite vividly the centrality of the foreign exchange constraint facing the Ugandan economy. The results also show that fiscal balances are not going to be restored