N Korea's fudge-it budget

Imagine a national budget that reflects steady growth, gives a healthy boost to science and technology while reserving big slices of the overall pie to defence and social spending. It's generous with infrastructure improvements, and is certain of unquestioning, unanimous approval in parliament.

Congratulations. You are now thinking like a North Korean economist.

North Korea's Supreme People's Assembly passed a budget with all of those features last week in an annual ritual reflecting the country's conflicting desires to keep up appearances, especially for potential foreign investors, while obscuring even the most basic statistics needed to gauge its economic health.

The mysterious manner in which North Korea reports its budgets — and generally hides other economic indicators — is particularly frustrating as experts are now carefully scrutinizing whatever information they can get in an effort to understand the motives of leader Kim Jong Un as he prepares to hold his first summit with South Korean President Moon Jae-in next week and U.S. President Donald Trump in late May or early June.

"North Korea really is unique in this regard," said Benjamin Silberstein, an associate scholar with the Foreign Policy Research Institute and co-editor of the North Korean Economy Watch website. "Going back to the 1960s, even Soviet bloc diplomats recorded their frustrations at how not even basic legal documents were made public."

The budget's typically rosy outlook contrasts sharply with a slew of challenges facing leader Kim Jong Un.

The country has logged significant growth since Kim assumed power in 2011, but is now operating under the toughest set of international trade sanctions it has ever had to endure. Beijing's apparent decision toward the end of last year to tighten restrictions even beyond those mandated by the United Nations is squeezing it further.

North Korea is notoriously reluctant to provide transparency on just about anything.

It stopped revealing its actual budget numbers in 2001, opting instead for percentages of growth or of the total, as it did again this year. It hasn't published macroeconomic performance indicators since 1965. Most foreign experts rely instead on data compiled by the South Korean government.

Because of the way it's reported, it's not even entirely clear if the budget is balanced. That said, the budget's highlights include:

  • Revenues are rising. For fiscal 2017, North Korea forecast a 3.1 per cent revenue increase, which it later revised up, to 4.9 per cent. The increase this year is forecast to be about the same, 3.2 per cent. Total expenditures are expected to grow 5.1 per cent, down in percentage terms at least, from 5.4 per cent for last year's budget. 
  • Despite its official claim of having a centrally planned socialist economy, Pyongyang relies heavily on local governments for nearly a quarter of the funds it needs to pay for itself. Revenues collected by the central government now account for 73.9 per cent of the total — and the remainder, many North Korea watchers suspect, may boil down to profits made on the quasi-official market economy that has flourished under Kim.
  • Sanctions notwithstanding, North Korea is hoping to reap revenues from its special economic and trade zones, which often depend on investment or joint venture arrangements from Chinese and, to a lesser degree, Russian partners. 
  • Defence spending stays at 15.8 per cent, roughly the same as last year.
  • A big umbrella category called "the development of the national economy" now accounts for a 47.7 per cent share, presumably reflecting Kim's vow to improve the people's standard of living.

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