Publication of KDI North Korea Economic Review April 2023 Issue
North Korea's economic autonomy, which expanded during the early years of Kim Jong-un's rule, has reportedly retreated, with conservatism becoming more pronounced. As financial resources have been depleted due to prolonged sanctions against North Korea, the centralization of the fiscal and financial system has been significantly strengthened, leading to a reduction in the autonomy of economic agents.
On the 28th, Choi Ji-young, a research fellow at the Korea Institute for National Unification, diagnosed this in a report titled "Changes in North Korea's Fiscal and Financial System Since Kim Jong-un's Rise to Power," published in the April 2023 issue of the KDI North Korean Economic Review. Among socialist countries, North Korea has maintained a state closest to the classical socialist model for the longest period. However, during the early years of Kim Jong-un's rule, fiscal and financial reforms were implemented. Yet, with the prolongation of sanctions, a marked strengthening of centralized state control has been observed.
In the early period of Kim Jong-un's leadership, North Korea carried out fiscal and financial reforms centered on marketization and decentralization. In particular, revisions to fiscal-related laws clarified the distribution between the state and production units. Notably, enterprises were granted some autonomy in the production process, enabling a significant expansion of tax bases through income generated by market economic activities. The scope for enterprises to invest in facilities using their own funds instead of the state budget, based on autonomous decisions, increased compared to before.
Attempts were also made to activate the fund intermediation function of financial institutions. Reflecting the expanded circulation of cash, foreign currency cash accounts and savings deposits were permitted for enterprises, and electronic payment cards were introduced for households to encourage savings and remittances. Especially, measures were taken to activate commercial bank functions, such as allowing residents' idle funds to be linked to enterprise loans through official financial institutions. Researcher Choi evaluated, "Since Kim Jong-un's rise to power, North Korea has strengthened the linkage between fiscal reform and financial reform, which also led to favorable economic outcomes in terms of production and prices."
However, as sanctions have prolonged and fiscal conditions worsened, the fiscal and financial system appears to be retreating toward strengthening centralized state control. In August 2021, the Fiscal Law was revised to enhance the state's budget revenue by reinforcing centralized collection of enterprises' net income. Additionally, the authority of production units to hold their own funds was reduced, and their repayment responsibilities for self-raised funds were further emphasized. The financial system has also shown increased coerciveness.
Researcher Choi stated, "Since 2019, changes in the financial system have appeared, such as the expansion of compulsory insurance enrollment and mandatory bank account openings, which are methods of mobilizing forced savings." She added, "Such coercive and arbitrary policy interventions act as factors that reduce trust in overall economic policy," and emphasized, "It is necessary to maintain policy consistency so that the recent policy shift toward strengthening state control does not undermine the achievements of previous reforms."
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