In recent years, North Korea has faced economic shocks from UN sanctions and the pandemic. As Dr. Jongkyu Lee (Senior Fellow at the Korea Development Institute) writes in his new article for Korea’s Economy, the impact on non-sanctioned items from border closures to prevent the entry of COVID-19 has proven nearly as significant as the impact on North Korea’s trade from sanctions. It is estimated that North Korea lost $8.71 billion in exports and $3.94 billion in imports due to sanctions from 2017-2020, which equates to an annual loss of $2.2 billion in foreign currency revenue and $1 billion worth of capital goods. The pandemic has cost it another $2 billion in imports in 2020.
The impact of the pandemic has not been limited to trade. There were indirect blows to the formal sector, especially to the national budget, and the informal sector, especially to prices and the exchange rate. In terms of the national budget plan for 2021, the growth of both revenue and expenditure marked the lowest levels since Kim Jong-un took power, confirming COVID-19’s negative impact on the formal sector. Meanwhile, in the informal sector, rice prices have remained relatively stable. However, there was a spike in the prices of substitute items for rice, such as corn, as well as for food and agricultural goods, and other consumer goods.
To cope with these challenges, the North Korean regime has recently strengthened its control over the informal sector; however, the strong measures are not expected to continue, as the regime recognizes that the informal sector has been a major growth engine. If the restrictive stance were prolonged, it could pose a risk to the regime by making key growth engines obsolete. Therefore, rather than controlling the markets, the measures appear to be aimed at normalizing informal sectors that were operating abnormally to achieve orderly markets.