KDI: "North Korea Faces 'Fiscal Shock' This Year... At a Critical Juncture"

Analysis of North Korea's Macroeconomic Trends in 2020 and Outlook for 2021

[Asia Economy Reporter Son Sun-hee] It is forecasted that North Korea will experience a 'fiscal shock' this year due to the economic impact of the COVID-19 pandemic.

Lee Jong-gyu, Senior Research Fellow at the Korea Development Institute (KDI), stated this in a report titled "North Korea's Fiscal Shock and Its Economic Impact," published on the 29th in the January issue of KDI's "North Korean Economic Review," analyzing North Korea's budget revenue and expenditure plans for last year and this year, as well as recent policy characteristics.

Lee said, "Regardless of the debate over the number of confirmed COVID-19 cases in North Korea, it is clear that a very significant economic shock has been inflicted. The pandemic, a new variable faced amid the cumulative impact of intensified international sanctions since 2017, must have dealt an even greater blow to an already struggling North Korean economy," he analyzed.

Last year, North Korea implemented stronger lockdown measures than any previous epidemic crisis in response to COVID-19. As a result, the average monthly public revenue, which had maintained 91% and 83% levels compared to the previous year during the Ebola and Middle East Respiratory Syndrome (MERS) periods respectively, plummeted to only 21%, one-fifth of the previous year, following the COVID-19 lockdown measures.

It is analyzed that last year, North Korea forcibly secured its budget through measures such as the revival of depreciation funds, strengthened fiscal management, and the 80-day campaign. Essentially, it mobilized all available capacities.

However, the problem lies in this year. The budget revenue plan announced through this year's Supreme People's Assembly is expected to increase by only 0.9% compared to the previous year, the lowest figure since Kim Jong-un assumed power. It is expected to enter the '0% range' for the first time.

In particular, compared to the early period of Kim's rule (5.0%), the full-scale sanction period (3.3%), and the COVID-19 spread period (4.2%), this year is expected to experience a 'fiscal shock.'

This year's fiscal expenditure is also projected to increase by 1.1%, marking the first time since Kim Jong-un's rule that it has recorded a figure in the 1% range, indicating weakened policy capacity.

Senior Research Fellow Lee said, "North Korea's fiscal and policy responses, which had been barely holding up under strong sanctions, have reached a turning point this year. While emphasizing self-reliance and attempting to overcome the fiscal crisis compounded by economic difficulties by strengthening North Korea-China relations, considering the current domestic and international environment, it will not be easy to immediately implement such measures," he said. He added, "Ultimately, the remaining option is to maximize the use of the domestic informal sector, but this will require a change in the recent policy trend that has been centered on control. (Kim Jong-un) appears to be standing at an important crossroads of choice."

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