Development in the territory:
In recent years, there have been changes in the economy towards a market or quasi-market environment. State economic entities have the opportunity to trade with their surpluses, which they have created beyond the scope of the state plan. The army is self-managed, which probably covers its current expenses to a large extent. Individuals can sell agricultural surpluses.
Since the end of 2017, drastic sanctions have been imposed on the DPRK by the UN, the US, the EU and some other countries as a result of the continuation of the nuclear program. The country is prohibited from exporting most of the raw materials and especially black coal, which formed the backbone of its exports. Except for food, the import of most goods is prohibited. The import of oil products is severely limited (500,000 barrels per year). By the end of 2019, all countries were to deport North Korean workers who worked abroad and paid most of their wages to the state.
According to cheeroutdoor.com, the DPRK has had to adapt to a sanctions regime that has a strong impact on the country’s economy. The DPRK circumvents sanctions in various ways and techniques. It can be estimated that the volumes of imports and exports, taking into account the circumvention of sanctions, are close to the state that existed before the sanctions regime. Despite the efforts of the UN and especially the US to strengthen control over compliance with sanctions, it can be assumed that the DPRK will continue to successfully circumvent sanctions. In addition, it has two strong allies in this – China and Russia, who, although at the end of 2017 in the UN Security Council voted for the current form of sanctions due to security threats arising from the DPRK’s nuclear program, at the same time, they are not interested in the DPRK regime falling due to economic threats destabilized and thereby created a dangerous situation on the Korean peninsula. At the same time, the regime strengthens the long-term policy of relying on one’s own forces in the area of the economy, however, especially in the area of food, it cannot do without significant imports. At the same time, it needs to obtain funds to pay for imports through exports.
Since the beginning of 2020, there has been a significant change in the situation in the economy in connection with the Covid-19 pandemic. All transport to and from the country was completely stopped, including imports and exports. An important source of income in the form of Chinese tourists has been lost. The import of goods does not start to resume until May 2020, and it is not certain how the situation will develop further. In addition to legal trade, circumvention of sanctions is also unlikely to take place. The longer duration of this situation will have a much greater impact on the economy than the introduction of sanctions.
The UN estimates that more than 10 out of 25 million people are in need of food aid due to insufficient or unbalanced diets. Estimates of the country’s agricultural performance vary. What is certain, however, is that the DPRK is far from self-sufficient in this area, largely due to the inefficiency of production in the sector due to insufficient mechanization, lack of fertilizers and outdated practices.
Public finances, state budget – income, expenditure, balance for the last 5 years
The state budget is approved annually by the Supreme People’s Assembly at its spring session (the mere fact of approving the budget for the current calendar year in April proves the non-economic meaning of this activity). The budget is planned by the Ministry of Finance in coordination with the State Planning Commission. The state budget is an important tool of the planned economy. The main expenditures of the state budget are directed to the military area, the socio-cultural area and to ensure the functioning of the economy.
The state budget, as well as other economic and statistical data, is not published. Only some inconsistent data is published.
For the year 2020, 47.8% of the state budget expenditure was allocated to the economy sector, and 15.9% to the defense sector. This share corresponds to previous years. The highest growth should be experienced by expenditures in the area of healthcare (especially in connection with the pandemic) and in the area of science and technology (priority for the KČU).
Since 2008, budget expenditures have regularly exceeded revenues. A budget deficit of 1.8% is planned for 2020. It is not clear how the deficit is financed when the DPRK cannot borrow on external markets. There can be several explanations: it can be covered by illegal operations (violation of sanctions), real incomes can be higher, or incomes from the non-state part of the economy, which should be more efficient, can grow.
Balance of payments (current, capital, financial account), foreign exchange reserves (last 5 years), public debt to GDP, foreign debt, debt service
Data relating to the balance of payments and foreign exchange reserves are not published and cannot be derived in any way.
Banking system (major banks and insurance companies)
The banking sector in the DPRK is not a principle source of capital for the development of the economy, because the socialist planned economy is based on a system of subsidies from centrally controlled sources. However, the banking sector plays an important role, as the central bank is in charge of printing money and the associated control of local currency circulation. The banking system of the DPRK works as a monobank, as the Central Bank of DPRK not only fulfills the function of the central bank, but also conducts banking business together with commercial banks by providing loans to businesses and accepting deposits from individuals and legal entities. The central bank also issues prepaid cards called Jonsong, which can be used to pay in selected shops.
In 1984, the Joint-Venture Act came into effect, allowing the establishment of joint banking institutions between the DPRK and Korean residents abroad.
Among the most important banking institutions and insurance companies in the DPRK are:
- state banks : Central Bank of DPRK, Changwang Credit Bank, Credit bank of Korea, Foreign Trade Bank of DPRK, International Industrial Development Bank, Korea Daesong Bank, Koryo Bank, Kumgang Bank
- joint banks : Korea Commercial Bank, Korea Joint Financial Co., Korea Joint Venture Bank, Korea Nagwon Joint Financial Co., Korea Rakwon Joint Banking Co., Korea United Development Bank
- banks with foreign participation : Daesong Credit Development Bank, Golden Triangle Bank
- insurance companies : State Insurance Bureau, Korea National Insurance Co. (also known as Korea Foreign Insurance Co.), Korea International Insurance Co., Korea Mannyon Insurance Co.
Sanction measures are now also a problem in the insurance industry. As of March 31, 2016, the EU added the Korea National Insurance Corporation (KNIC) among the subjects of sanctions against the DPRK, of which until then only its branch in Hamburg appeared on the list. The rationale states that KNIC “generates substantial foreign currency earnings that could contribute to the DPRK’s nuclear, ballistic missile, or other weapons of mass destruction programs. In addition, the KNIC office in Pyongyang is connected to the 39th office of the Workers’ Party of Korea, which is a designated entity.”
The new measures include additional criteria that include prohibitions on maintaining correspondent banking relationships and joint ventures with banks and entities with ties to North Korea. Accounts of North Koreans were frozen in accordance with the tightened sanctions against the DPRK, and Chinese banks, incl. the largest Chinese Industrial and Commercial Bank (Industrial and Commercial Bank of China – ICBC). All transfers in foreign currencies to and from accounts with North Korean names are also stopped.
All direct taxes were abolished in the DPRK in 1974. As a result, the people of the DPRK are all the more directly dependent on government services. But the government collects sales tax on all transactions between manufacturers and sellers. Farmers are also subject to fees for seed, fertilizer, irrigation water and equipment. Consumers pay a tax for water and other “comforts”. It is not clear how much agricultural cooperatives officially transfer from their harvest to the state, this data does not exist, but the prevailing opinion is that the amount of crops that the members and their family members will receive in the cooperative after the harvest is apparently fixed, and the “rest” is transferred to state resources. Private growers of agricultural crops on land around their homes are also subject to the levy.
All foreign investors are subject to the payment of income, turnover, property and local taxes. In the four special economic zones established by the government, there are corporate taxes of 14%. For companies bringing modern technologies, infrastructure construction or participating in the development of light industry, this tax is 10%.