North Korea’s economy struggles as sanctions, COVID-19 weigh

Already suffering under stringent United States and United Nations sanctions, North Korea’s economy faced a double whammy of severe floods and the coronavirus pandemic, which prompted Pyongyang to shut its border with China and ditch outside aid.

Kicking off a rare congress on Tuesday, January 5, North Korean leader Kim Jong-un said his ambitious 5-year economic plan unveiled in 2016 had “tremendously fell short of goals on almost every sector.”

How bad is North Korea’s economy? Here is what we know.

Shrinking economy

After shrinking 4.1% in 2018 – its sharpest contraction in 21 years – North Korea’s economy grew 0.4% in 2019, thanks to improved weather and crop yields, according to South Korea’s central bank.

But the isolated economy may have contracted by 8.5% last year, Fitch Solutions said, while South Korea’s Hana Institute of Finance estimated a decline of up to 10%.

The biggest blow came from a drop in trade with China, its top ally which is responsible for some 90% of North Korea trade. Two-way trade plunged nearly 80% to $534.1 million last year as of November from the same period of 2019, Chinese customs data showed.

Still, US and UN officials have accused North Korea of clandestinely exporting coal, seafood, and other commodities – mostly to China – in violation of international sanctions.

The pandemic likely had a greater impact than international sanctions, severing nearly all sources of foreign currency, including tourism, labor exports, and overseas restaurants, experts say.

Food shortages

Reduced trade also led to a lack of fertilizer and farming tools, and North Korea’s chronic food shortages were exacerbated by severe floods.

There was more rain last summer than 2007 when North Korea suffered devastating floods, according to Seoul’s Unification Ministry. North Korean state media reported tens of thousands of homes and vast swaths of farming areas were damaged, mostly in the breadbasket province of Hwanghae.

The UN’s World Food Programme said in July, just before the monsoon season, that more than 10 million people, or 40% of the population, were already facing food shortages.

“A crisis could come in the spring due to a fall in outside aid and fertilizer imports as well as flood damage, which came together to inevitably cut crop harvest,” said Jang Hye-won, an analyst at the Hana Institute of Finance, in a December 18 North Korean economy outlook.

Market volatility

Economic concerns triggered volatility in fuel and food prices and exchange rates in unofficial markets, where most ordinary North Koreans buy their food.

In the capital Pyongyang, the value of the North Korean won rose about 17.5% and 15.2% against the dollar and Chinese yuan between September and November, according to data compiled by Daily NK, a Seoul-based website that gathers news and information from sources inside North Korea.

Rice and gasoline prices, which are sold in local currency, plummeted more than 10% during that period in line with the appreciation of the won.

“The exchange rates likely increased because there were less foreign currencies available after trade and smuggling with China was cut and North Korea sealed off some areas where any suspected COVID-19 cases came out,” said Kang Mi-jin, a defector and economist who analyzes market data at Daily NK. – Rappler.com