By Youngwoo Jung and Jessup Jong
September 16, 2020
Economic Impacts of the Pandemic in North Korea
The COVID-19 pandemic has affected the world’s largest economies including the U.S. and China. The U.S unemployment rate reached its highest rate since the Great Recession in 2008: 14.7% in April 2020. The US GDP declined by 4.8% during the first quarter of 2020. Similarly, China’s GDP shrank by 6.8% in the same quarter. In response, economists are scrambling to evaluate the exact economic impact of COVID-19 and ways countries can recover from the pandemic.
When the North Korean regime claims nearly zero COVID-19 cases, scholars face challenges in verifying this information due to a lack of information. Economists can, however, approximate the virus’ economic impact by measuring flows through North Korea’s borders during the pandemic. North Korea closed its borders on January 22nd, earlier than most countries. While some argue this early lockdown may have been effective in containing the virus, barring foreign tourists and stopping trade relations with China most certainly weakened North Korea’s economy.
During the first quarter of this year, North Korea’s export to China was slashed by 79%, while its import from China declined by 53% compared to Q1 of 2019. As a result, North Korea exported $616,000 and imported $18 million in March 2020.
In the backdrop of economic sanctions, tourism and trade at its borders remained one of the few chances of legally bringing in foreign currency. Even accounting for its informal economy that violates UN sanctions, closure of North Korea’s northern border has worsened its economy. According to a UN estimate, illegal coal shipments had generated about $46.25 million per month in 2019. In response to COVID-19, the North Korean regime slowed down smuggling and illegal coal shipments. Some say COVID-19 achieved what UN sanctions have failed to implement for years.
Experts claim that the COVID-19 pandemic exacerbated North Korea’s food security issue that had been going on for decades. As a result of closing borders, the supply of imported foods has declined - prompting inflation for those goods. To counter this, the North Korean government launched an aggressive price control campaign for imported foods.
The insurance bonds issued by the North Korean government also demonstrated North Korea’s economic difficulty. The last time the regime issued these bonds was in 2003 to recuperate foreign currency. Issuing these bonds essentially forced North Korea’s elites to fund the regime. Experts note that this action indicates the North Korean government’s financial constraints due to ongoing sanctions and the COVID-19 pandemic.
Similar to the situation of any other country, the coronavirus has exacerbated economic hardship in North Korea.
How Can North Korea Economically Recover from COVID-19?
First, reopening the DPRK-China border will have the largest impact on North Korea’s economy. Although the profits from trade and tourism would be lower than previous years, the reopening of its borders with China would provide the foreign currency it longs. In order to reopen borders, North Korea would have to amplify its testing capabilities in preparation of regional outbreaks. The increase in testing capability has been crucial for countries that successfully combated the virus, such as South Korea and Taiwan. Although Russia sent North Korea 1,500 testing kits, they are not enough to contain potential COVID-19 outbreaks.
By reopening its borders, North Korea will alleviate the supply shock of food and other essentials. As a result, North Korea would be able to discontinue its economically inefficient price-control measures.
Second, the North Korean regime can support industries impacted by the pandemic. For example, the United States and South Korea passed massive stimulus bills to counter the economic impacts of the COVID-19 pandemic.
North Korea supposedly increased its state budget by 6% this year. In its budget, North Korea maintained its high level of defense expenditure while it further increased its public health budget in response to the COVID-19 threat. The North Korean government allocated 47.8% of the budget on economic affairs - a 5.4% increase compared to last year.
A 6% increase in the overall state budget, however, is not enough to alleviate the economic hardship. As a self-reliant economy, North Korea should significantly augment expenditures on sectors that are reliant on imports, such as agriculture. Providing support for those industries can boost consumer demands that are vital to its economy.
Third, the regime can ask for foreign aid. Indeed, North Korea has repeatedly sought for foreign aid when it faced hardship in the past. Given the global impact of the pandemic, North Korea is unlikely to receive sufficient foreign aid to mitigate all of its economic damages. With North Korea’s recent actions being perceived as hostile and provocative, the will for foreign aid has dried up even further.
Nevertheless, even if North Korea successfully reopens its borders and receives foreign aid, its economy will most likely be sluggish for a while because the Chinese economy is still reeling from the pandemic and aid will not be enough. The North Korean government should, therefore, try to recover its economy without foreign help, by significantly increasing government spending to boost domestic consumption and investments.
How North Korea Can Economically Prepare for Future Pandemics
North Korea has experienced health crises in the past such as Ebola, MERS, SARS, various flus, etc., and the coronavirus pandemic will not be the last. To mitigate the future economic impact of epidemics, North Korea must reform its public health infrastructure.
With a stagnant economy, North Korea has a low-quality public health system. Although North Korea has 13.2 hospital beds and 3.7 physicians per 1,000 people, many North Korean defectors testify that citizens lack access to quality healthcare, contrary to the regime's guarantee to healthcare services. People in North Korea also lack access to quality WASH infrastructures. About 39% of the population does not have access to safe water sources, while 16% do not have access to basic sanitation infrastructures; it is worse for rural areas.
Such conditions in the North Korean public health system make the regime especially vulnerable to highly infectious diseases such as COVID-19. According to a 2018 assessment by the WHO, North Korea was rated the 4th lowest in health emergency preparedness in the South-East Asian Region. In the case of an infectious disease outbreak, North Korea’s labor shortage will be severe. For years, the regime has resorted to forced labor to solve its labor shortage, which includes a 10-year mandatory military service for adult males and forced labor camps. When it can no longer force its population to work, contagious diseases will severely damage its already weak economy.
In order to prevent massive labor shortages and economic downturns, North Korea should implement the lessons other countries are gaining from this pandemic. In addition to providing better access to WASH infrastructures and essential healthcare services, North Korea should swiftly act to implement systems for effective contact tracing, information sharing, and disease testing.
While North Korea can stabilize the devastating economic effects of the COVID-19 pandemic, its economy will not fully recover in the short-term because it relies on the Chinese economy. The regime should examine the economic impact of COVID-19 to prepare for future epidemics. While public health crises may seem unpredictable, outbreaks have predictably threatened countries’ economies. It is now time for countries to prepare against such threats.
Youngwoo Jung studies International Studies at Johns Hopkins University. He is a researcher at LiNK JHU and TNKR. He has published in 38 North with Jessup Jong regarding the COVID-19 outbreak in North Korea.
Jessup Jong is a Korea Policy Research Associate at Harvard Medical School. As the Aitchison Public Service Fellow, Jessup graduated with the Julius Turner Award for best thesis in Political Science at Johns Hopkins University. He tweets at @jessupjong.
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HRNK staff members and interns wish to dedicate this program to our colleague Katty Chi. A native of Chile and graduate of the London School of Economics, Katty became a North Korean human rights defender in her early 20s. Katty was chief of international affairs with the North Korea Strategy Center (NKSC) in Seoul from 2010 to 2014 and worked with the Seoul Office of Liberty in North Korea (LinK) from 2019 to 2020. A remarkable member of our small North Korean human rights community, Katty brought inspiration and good humor to all. Katty passed away in Seoul this past May, at the young age of 32. She is survived by her parents and brother living in Chile. With the YPWP series, we endeavor to honor Katty’s life and work.