'Relentless Harsh Criticism'... What Exactly Is North Korea's Economy Like?

Continued North Korea Sanctions + Ongoing Negative Growth Due to COVID-19 Impact
Possibility of Sharp Rise in Exchange Rates and Prices

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] Kim Yo-jong, the First Deputy Director of the Workers' Party of North Korea, has continued to strongly criticize the Blue House and pursue a hardline policy toward South Korea, which analysts say is also influenced by North Korea's economic situation. It is interpreted as an intention to consolidate internal unity amid recent economic difficulties. Observers point out that the recent economic shock in North Korea resembles the situation at the beginning of the "Arduous March" period in the past.

According to the "2020 North Korean Economy, a D?j? Vu of 1994?" article published in the May issue of the North Korean Economic Review by the Korea Development Institute (KDI) last month, the economic shock North Korea is facing this year shows similarities to that of 1994 when the Arduous March began. The country suffered a fatal blow due to the already severe impact of strong international sanctions and the additional effects of the novel coronavirus disease (COVID-19).

As the United States imposed strong sanctions on North Korea, the scale of North Korea's trade with China shrank from $2.6 billion in 2016 to $200 million in 2019. This movement is similar to the Soviet shock following the collapse of the Soviet Union, when North Korea's trade volume dropped from $1.7 billion in 1990 to below $900 million in 1994.

Furthermore, due to the COVID-19 shock, North Korea completely closed its border with China from January this year and implemented quarantine measures, which dealt an additional fatal blow to North Korea-China trade. In March this year, North Korea's exports to China decreased by 96%, and imports by 90%, with both exports and imports falling by about 90% again in April.

The report even stated, "To exaggerate slightly, one of the economies most severely affected by the COVID-19 pandemic this year is North Korea's economy."

This is comparable to the China shock in 1994 when North Korea's food imports from China sharply declined. At that time, food imports from China to North Korea halved from 740,000 tons in 1993 to 300,000 tons the following year.

Lee Seok, a senior researcher at KDI, said, "Currently, North Korea's economy has resilience, political control is in place, and there are several differences in international conditions such as China compared to the time of the Arduous March," but added, "Although a crisis may not appear immediately, the uncertainty is high, so we must be vigilant and respond wisely."

Looking at estimates from the Bank of Korea also helps gauge North Korea's recent worsening situation. According to the Bank of Korea's estimates, North Korea's GDP growth rate was -3.5% in 2017 and -4.1% in 2018, marking two consecutive years of negative growth, and last year, the impact of sanctions on North Korea led to a predominantly negative assessment.

North Korea's gross national income (GNI) per capita was estimated at $1,298, approximately 1,428,000 won, as of 2018. It has been on a downward trend since recording 1,460,000 won in 2016. By industry, growth rates showed negative figures, including mining and manufacturing (-12.3%), construction (-4.4%), and agriculture, forestry, and fisheries (-1.8%).

Recently, North Korea is also expected to see a decrease in its foreign currency holdings. Although it is currently sustaining itself with previously accumulated foreign currency reserves, if sanctions and other conditions persist, exchange rates and prices could soar. Hana Financial Economic Research Institute stated in its report "Economic Impact of COVID-19 on North Korea" that North Korea's trade deficit in goods was $2.36 billion last year and $2 billion in 2018, and considering North Korea's foreign exchange reserves (estimated between $2.5 billion and $5.8 billion in 2018), serious concerns about the sustainability of North Korea's economy are anticipated.

Therefore, the Bank of Korea has analyzed that recently, North Korea appears to be showing movements to study overseas banking systems, currency circulation and exchange rates, trade theory, and competitiveness in the era of globalization.

This content was produced with the assistance of AI translation services.