Is the North Korean economy in crisis territory?

By: Benjamin Katzeff Silberstein

Is the North Korean economy in a crisis following years of tough sanctions and the Covid-19 border closure? In a new report, the Bank of Korea’s answer is yes. They point to factors such as vast price increases on several basic goods to show that shortages have led to a price inflation virtually across the board for crucial consumer products:

The price of sugar in North Korea has multiplied by a factor of 8.3 between 2017 and late June of this year, from 5,201 won to 43,000 won per kilogram. During the same time period, the price of flour grew 3.7 times in the country as well, from 5,029 won to 18,700 won per kilogram.

Sugar and flour are two of the main food products North Korea imports from other countries. The extent to which their prices jumped in North Korea exceeds what might be observed in South Korea today due to high inflation. What could have happened in North Korea in the past five years to occasion such a surge in prices?

On Monday, the Bank of Korea published a report titled “North Korea’s Economy in the Past Five Years and Its Future Outlook,” which pointed to how the country’s economic environment changed during the time period. In a nutshell, the report argued that North Korea’s economy has entered yet another period of crisis after the 2000s, when its economy grew, following the 1990s, when the country experienced an economic crisis and a famine, also known as the Arduous March. North Korea’s gross domestic product (GDP) fell by 2.4% on average every year from 2017 to 2021 and is estimated to have dropped by a total of 11.4% during this time period.

What prompted the crisis in North Korea were economic sanctions against the country as well as border closures due to COVID-19.

(Source: Park Jong-O, “Why the price of sugar went up 726% in N. Korea over the last 5 years”, Hankyoreh, September 6th, 2022.)

Broadly speaking, given the data available, it is difficult to draw any other conclusion. At the same time, it is crucial to keep a few things in mind. First, much of the economy is adapted to a situation with very little foreign trade, because even in a normal year, North Korea’s external trade is exceptionally small compared with most countries in the world.
Second, there’s like to be considerable regional variation in the economic situation. Transportation inside North Korea has improved considerably over the last 10-15 years but getting goods from, say Hyesan in the northeast to Pyongyang, or a southern city like Sariwon, is still difficult, complicated and time consuming. So we are not necessarily talking about one, unified market with similar conditions across the country, but rather about a very fractured system.

Third, the word “crisis” in the context of the North Korean economy comes with very serious connotations since the famine of the 1990s. But we are decidedly not talking about a situation with mass starvation, and the Bank of Korea acknowledges this. Because of the expansion of the market system, the economy can respond very differently to shortages today than it could in the 1990s and early 2000s. Consumers can and likely have switched to less desired goods that can be procured and produced domestically. Both flour and sugar can, after all, to some extent be substituted for less desired but more easily available goods. We’ve also seen an increase in the price over corn over rice, which exemplifies this well: when the more desired good (rice) becomes more expensive, a greater number of people switch over to corn. This does suggest economic conditions have worsened, but not necessarily that they are disastrous.

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