The Asian Development Bank (ADB) has called on its host country to strengthen oversight and financial risk management of government-owned and/or -controlled corporations (GOCCs), warning that their growing liabilities and fiscal exposure could pose long-term risks to public finances.

In a report titled “Enhancing Financial Risk Management and Oversight of Philippine Government-Owned or -Controlled Corporations,” published on Friday, Feb. 20, the Manila-based multilateral lender highlighted the scale of GOCC financial exposure and the need for reforms to improve monitoring, transparency, and fiscal discipline.

The ADB report cited Development Budget Coordination Committee (DBCC) data showing that GOCCs’ total liabilities reached ₱18.5 trillion as of end-2023, equivalent to 76 percent of gross domestic product (GDP). The 24 largest state-run firms alone accounted for ₱17.84 trillion, or 96.4 percent of total GOCC liabilities, equivalent to 73.4 percent of GDP, DBCC data showed.

For the ADB, these figures underscore the magnitude of fiscal risks tied to GOCCs, which operate across key sectors such as finance, transportation, utilities, and infrastructure and play a vital role in national development.

The lender noted that the national government (NG) provides fiscal support to GOCCs through loans, guarantees, subsidies, and public-private partnership (PPP) funding, but stressed that reforms are needed to strengthen oversight and risk assessment.

“These include developing a clear framework for extending support; clarifying the roles and responsibilities of reviewing and approving agencies; better defining GOCC categorization; enhancing fiscal risk reporting; and ensuring that government financial support is viewed holistically, recognizing that commitments often cover multiple financial years,” the report said.

It warned that fragmented oversight makes it difficult for policymakers to fully assess fiscal exposure.

“Support requests may be received at various times during the year and reviewed and approved by different NG institutions,” the report noted, adding that this makes it difficult “to determine the total support given to GOCCs over the medium term.”

The ADB noted that fiscal risks arise not only from liabilities but also from government guarantees, advances, and subsidies extended to GOCCs.

Among major GOCCs, financial institutions and social security entities account for 89 percent of liabilities, while infrastructure and food-sector GOCCs such as Power Sector Assets and Liabilities Management Corp. (PSALM), National Food Authority (NFA), and National Irrigation Administration (NIA) represent a significant share of fiscal risk through guarantees and subsidies.

To address these risks, the ADB recommended clearer classification of GOCCs based on their commercial or noncommercial mandate, which would improve fiscal risk assessment and funding decisions.

“Classifying GOCCs as either commercial or noncommercial would help identify fiscal risks and improve the management and oversight of GOCCs,” it said.

The lender also urged the NG to adopt multiyear financial planning to better align funding decisions with fiscal capacity.

“GOCCs should develop multiyear business plans that set both financial and nonfinancial performance targets,” the ADB said, noting that current budget processes often focus on annual fiscal programming rather than long-term sustainability.

Also, it called for the implementation of a unified reporting framework to improve transparency and oversight.

“Creating a CRS will improve the identification and management of GOCC-related fiscal risks, while also streamlining and strengthening GOCC governance and the [NG’s] oversight as a shareholder,” the report said, referring to the proposed common reporting standard.

Under the proposed reforms, GOCC business plans would serve as the foundation for fiscal risk monitoring, supported by a centralized reporting system accessible to oversight agencies such as the Department of Finance (DOF), the Department of Budget and Management (DBM), and the Governance Commission for GOCCs (GCG).

The ADB said such reforms would enable policymakers to better assess financial risks, improve transparency, and ensure that government support to GOCCs remains sustainable.

“Adoption of the business plan-based system will also address all of the gaps and weaknesses in GOCC-related fiscal risk reporting and management identified in this report,” it said.

With GOCC liabilities representing a substantial share of national economic output, the ADB said strengthening governance and fiscal oversight will be critical to protecting public finances while ensuring state-owned firms continue to deliver essential services.