North Korea economic crisis looms on sanctions, think tank says

North Korean shipments to China have fallen drastically since the UN Security Council tightened its trade sanctions against the Kim Jong Un regime in 2017.
North Korean shipments to China have fallen drastically since the UN Security Council tightened its trade sanctions against the Kim Jong Un regime in 2017.PHOTO: AFP

SEOUL (BLOOMBERG) - North Korea's trade with the outside world has nearly collapsed under international sanctions in recent years, putting the country on course for an economic crisis, according to a report published by a South Korean think tank.

North Korean shipments to China have fallen drastically since the UN Security Council tightened its trade sanctions against the Kim Jong Un regime in 2017, drying up hard currency needed to support economic activities in the country.

That has hurt the volume of imports, led to a drop in people's income and triggered a decline in consumer goods' prices that could unravel Kim's economic reforms, said the report released Tuesday (July 2) from the Korea Development Institute (KDI).

China accounts for about 90 per cent of North Korea's trade. The grim state of North Korea's economy paints the backdrop against Mr Kim's hasty weekend trip to the border with South Korea to meet with US President Donald Trump.

In their previous meeting in Hanoi, Vietnam, Mr Kim demanded the removal of sanctions against his country, saying time was "important" to him. Mr Trump walked out of the talks and said he was in no rush for a deal.

"The sanctions in place are impacting North Korea's economy more seriously than anything in the past," KDI said. "If this phenomenon continues, North Korea's economy may experience a serious economic contraction, a second wave of income slumps and a subsequent crisis."

North Korea doesn't release its own economic data. To analyse the sanctions' impact, the KDI used trade data released from China's side, and limited information on stable goods like rice, corn and gasoline.

 
 
 

The KDI report admitted this shortfall in data, and said its analysis is more closer to looking into the likely impact of sanctions, rather than reaching a definite conclusion.

Mr Kim promised shortly after taking power in 2011 that he would make sure North Koreans would never have to "tighten their belts again." He then sought to develop the economy and nuclear weapons at the same time, embracing some market reforms.

Even though Mr Kim's market reforms initially helped raise income level, they made the North Korean economy more vulnerable to outside influence because of its greater dependence on hard currency, KDI said.

Easing sanctions has been the highest priority for North Koreans while Mr Trump has demanded Pyongyang first take actions that would make it impossible for the regime to restore its nuclear weapons. North Korea has conducted six nuclear tests, including the last one in September, 2017.