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North Korea workers in the Rason Special Economic Zone prepare squid to be exported to China in 2015. (provided by Takashi Ito)

The North Korean economy experienced negative growth of 3.5 percent last year amid the effects of international economic sanctions, a report shows.

“During 2017, North Korea’s GDP real GDP shrank by an estimated 3.5 percent from the year before. This was the lowest number since 1997 [-6.5%],” the Bank of Korea (BOK) said on July 20.

In terms of specific areas, the growth rate was heavily impacted by declines in areas such as mining (8.4%→-11%) and electricity/gas/water (22.3%→-2.9%), which had shown large increases the year before. Also suffering negative growth were manufacturing (4.8%→-6.9%) and farming (2.5%→-1.3%).

“The suitable rainfall in 2016 after drought conditions in 2015 led to an increase in grain production, and [North Korea] achieved 3.9 percent growth [its highest since the 6.1 percent growth recorded in 1999] amid strong performance in electricity production and international trade,” explained Shin Seung-cheol, head of the BOK’s National Accounts Coordination Team

“But in 2017, the drought conditions returned and grain production and hydroelectric power generation fell, while coal and other mineral production declined sharply and heavy and chemical industries production suffered from a lack of raw materials,” he explained.

Nominal Gross National Income (GNI) was up 0.7 percent to 36.6 trillion won (US$32.5 billion) from 36.4 trillion won (US$32.3 billion) the year before, but the gap with South Korea’s 1.7305 quadrillion won (US$1.536 trillion) widened from a difference of 45.3 to 47.2 times. Per capita GNI stood at 1,464,000 won (US$1,300) compared to South Korea’s 33,636,000 won (US$29,800), with the difference increasing from 22 to 23 times.

Fluctuations in North Korea’s economic growth rate from 1990 to 2017. South Korea’s growth rate is indicated by figures enclosed in parentheses.

International economic sanctions played a large part in North Korea’s economic slide. Amid active nuclear and missile testing in 2016 and 2017, the international community’s sanctions grew increasingly forceful. Adopted in Mar. 2016, UN Security Council Resolution 2270 banned exports of North Korean coal and iron ore but granted an exception for “livelihood purposes”; Resolution 2321 adopted that November imposed a quota on North Korean coal exports, setting caps of US$400 million or 7.5 million tons.

In Aug. 2017, Resolution 2371 was adopted, imposing an across-the-board ban on exports of North Korean seafood and mineral resources including coal, iron, iron ore, lead, and lead ore. It also froze the number of North Korean workers who could be dispatched overseas and barred the opening or expansion of joint ventures with North Korea. In September, Resolution 2375 was adopted, freezing crude oil exports to North Korea at 4 million barrels a year and reducing refined petroleum product exports by 55 percent. North Korea was also barred from textile exports and new contracts to dispatch workers overseas.

As a result, North Korea’s international trade last year fell to US$5.5 billion, down 15 percent from US$6.53 billion the year before. Exports in particular were down 37.2 percent to US$1.77 billion, while imports rose by 1.8 percent to US$3.78 billion.

“The North Korea sanctions chiefly barred North Korean exports of coal and other items, but with last year’s institution of sanctions on crude oil and refine petroleum product imports, there has been a decline from the year before in imports too since August,” explained Shin.

The North Korean economy’s growth rate is likely to fall even further this year amid powerful economic sanctions. While the crude oil and other import restrictions were applied only in the second half of last year, they have been in effect this year since January, with respective declines of 87 percent and 40 percent between January and May.

Since 1991, BOK has been publishing economic growth rates for the North Korean economy based on analysis and examination of yearly basic data on North Korean economic activity received from the National Intelligence Service and other agencies.

“The figures are calculated by comparing things like North Korea’s economic growth rate, industry structure, and economic scale using the price and value-added ratios vis-à-vis South Korea, so it’s not really appropriate to use the indicators for direct comparison with other countries,” Shin said.

By Lee Soon-hyuk, staff reporter

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