Reforming GOCC Governance to Curb Hidden Fiscal Risks in the Philippines

An Asian Development Bank report urges the Philippines to strengthen oversight of its government-owned corporations by clearly classifying them as commercial or noncommercial, fully costing public service obligations, and improving multiyear fiscal reporting. The goal is to reduce hidden fiscal risks, increase transparency, and ensure state-owned firms support development without putting undue pressure on public finances.

Government-owned and -controlled corporations, or GOCCs, are everywhere in the Philippine economy. They run railways and airports, manage irrigation systems, finance farmers and businesses, provide housing, and deliver health insurance and pensions. In short, they help deliver many of the services Filipinos rely on every day.

Because they are owned by the government, their successes and failures directly affect public finances. When they perform well, they can return dividends and support national development. When they struggle, the government often steps in with loans, guarantees, or subsidies. A new report by the Asian Development Bank, prepared in consultation with the Department of Finance, the Governance Commission for GOCCs, and the Department of Budget and Management, examines how these corporations are monitored and how fiscal risks can be better managed.

The Hidden Risks Behind Public Support

The government supports GOCCs in several ways. It lends them money, guarantees their borrowings, gives subsidies, and backs certain public–private partnership projects. Each of these tools may be necessary to fund infrastructure or provide social services. But together, they create financial obligations that can stretch over many years.

The country already publishes an annual Fiscal Risks Statement covering the largest GOCCs. This is an important step toward transparency. However, the report points out two problems. First, focusing only on total liabilities can be misleading because not all GOCC debts are guaranteed by the government. Second, some commitments, such as multiyear guarantees or long-term subsidy agreements, may not be fully reflected in a single year’s numbers.

The result is that risks can appear smaller or larger than they really are. Without a clear, consolidated picture, it becomes difficult for policymakers to understand how much exposure the national budget is carrying.

Commercial or Public Service? Why Classification Matters

One of the report’s key recommendations is simple but powerful: clearly classify GOCCs as either commercial or noncommercial.

Commercial GOCCs mainly sell goods or services and are expected to earn enough revenue to cover their costs and remain financially sustainable. Noncommercial GOCCs, on the other hand, provide public services that are mostly funded by taxes or government appropriations.

This distinction is important because it changes how government support should be treated. If a noncommercial agency receives funding, it may simply be fulfilling its public mandate. But if a commercial GOCC depends heavily on subsidies, that may signal deeper financial or policy issues.

Clear classification also helps avoid confusion between policy-driven support and operational underperformance. It creates accountability and makes it easier to decide when and how the government should intervene.

The Cost of “Free” Services

A major concern raised in the report is the problem of public service obligations. This happens when the government instructs a commercial GOCC to provide services below cost, such as setting low transport fares or electricity rates for social reasons.

While these decisions may be well-intentioned, they come at a cost. If the government does not fully compensate the GOCC for the difference between revenue and actual cost, the corporation’s financial health deteriorates. Maintenance may be delayed. Service quality may decline. Over time, the government may need to inject capital or rescue the company.

In other words, nothing is truly free. If services are underpriced without proper funding, the bill eventually returns to the state, often at a higher cost.

The report recommends a clear framework for handling such obligations. Government directives should be written and specific. The GOCC should calculate the full cost, including capital expenses. Both sides should sign a formal, multiyear agreement that spells out funding, targets, and performance measures. This approach turns hidden liabilities into transparent, planned commitments.

A Smarter Way to Monitor and Plan

To improve oversight, the report proposes a Common Reporting Standard built around a standardized multiyear business plan for each GOCC. Instead of submitting multiple reports to different agencies in different formats, GOCCs would prepare a single forward-looking plan covering at least three years.

This plan would include financial forecasts, investment projects, government support requirements, and key performance targets. It would be submitted through an improved digital reporting system accessible to oversight agencies.

By using one shared source of information, duplication can be reduced and coordination improved. More importantly, government support requests would be evaluated in a broader, medium-term context rather than on a piecemeal basis.

The overall message of the report is clear. GOCCs are essential to development, but they must be managed with discipline and transparency. By clarifying mandates, properly funding public service obligations, and strengthening reporting systems, the Philippines can protect public finances while ensuring that state-owned corporations continue to serve the public effectively.