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Date TimeJuly 26, 2019
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North Korean economy shrinks at fastest rate in 21 years under US sanctions and drought
North Korea’s economy shrank in 2018 by the most in 21 years after being hit by punishing sanctions to curb its nuclear weapons programme and after drought damaged its farming sector, South Korea’s central bank revealed on Friday.  The gloomy financial news followed a stark warning last week from the International Federation of Red Cross (IFRC) and Red Crescent Societies that rates of malnutrition and disease are increasing because of the poor harvest.  The impact of natural and political crises will compound pressure on Kim Jong-un’s regime to move forward with denuclearisation talks with the US and growing frustration about the worsening economy could help fuel an escalation of tensions in the absence of any progress.  The bank’s estimates showed that North Korea’s gross domestic product (GDP) contracted by 4.1% last year in real terms, the worst since 1997 and the second consecutive year of decline after a 3.5% fall in 2017. North Korea's international trade fell 48.4% in value in 2018 as toughened international sanctions cut exports by nearly 90%, the worst loss in exports since the central bank started publishing data nearly 30 years ago. "Sanctions that were added and strengthened in 2017 had a severe impact as drought hurt the farming sector, which accounts for more than 20% of output," Park Yung-hwan, said head of the Bank of Korea's National Accounts Coordination Team, according to Reuters.  International food aid has been given to the Pyongyang Children's Foodstuff factory Credit: Eddie Mulholland/The Telegraph North Korea does not disclose any statistics on its economy, but the South Korean central bank has been publishing estimates since 1991. However, last November, Ri Gi Song, one of the country’s leading economists admitted to the Telegraph that harsh US-led sanctions were slowing down the reclusive state’s economic progress.  “Frankly, if there were no sanctions our development pace would be much faster than now,” said Mr Ri, a professor at the Pyongyang Institute of Social Sciences professor and government adviser. His admission offers some context to Pyongyang’s growing impatience over the slow pace of negotiations with the US and South Korea over the dismantlement of its nuclear weapons facilities.  North Korea has demanded an easing of sanctions before continuing with disarmament talks, but the US is unwilling to step back from its “maximum pressure” strategy unless Pyongyang moves first.  The impasse led to the collapse of a summit between Kim and Donald Trump, the US president, in Hanoi in February, and although the two leaders met briefly on the border between South and North Korea in June, talks have not resumed since.  Drought has also hit the farming sector Credit: Eddie Mulholland/The Telegraph The recent troubles have hit an economy already functioning badly because of inefficiencies and isolation, but the elites of the country’s 25 million population are unlikely to feel the pinch.  Last week a report by the Washington-based Centre for Advanced Studies (C4ADS) revealed that North Korea used a complex series of schemes to import at least $191 million worth of luxury goods from 2015 to 2017, sourced from “as many as 90 countries” in breach of United Nations sanctions.  Meanwhile, the North’s poor are bearing the brunt of the country’s pariah status over its costly pursuit of nuclear weapons and intercontinental ballistic missiles capable of reaching the US.  “We are already seeing the impacts of this drought on vulnerable people,” Mohamed Babiker, head of the IFRC’s office in North Korea, said in a statement last week.  “Rates of malnutrition and water borne diseases like diarrhea and colitis are on the rise.”  South Korea’s intelligence agency also briefed parliamentarians rainfall in North Korea has fallen by more than 30% this year from a year before, deepening its cash crunch.  “North Korea is expected to exhaust its crop reserves earlier than usual this year,” Lee Eun-jae, one of those briefed, later told reporters.

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