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It is widely argued that the state must retreat into the role of a residual provider of goods and services with the aim of promoting alternatives to its own activities. This new concept of public management involves two related, but not wholly compatible sets of policies for financial management of public expenditures. First, there is the objective of fiscal restraint which emphasizes central control over expenditure totals. Second, the state is called upon to act in a more business-like fashion by devolving the production and delivery of public goods and services to semi-autonomous agencies. This paper argues that, in Mozambique, this tension between central control and devolved initiative is mediated by foreign aid through the interplay between programme aid, on the one hand, and project aid, on the other. I argue that the way this tension works in practice sets in motion a vicious circle which render state action progressively less coherent and effective as semi-autonomous projects compete material resources and skills away from regular state employment without much prospects of such projects becoming self-sustainable in the absence of the continued infusion of foreign aid.
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