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North Korea BUDGET AND FINANCE
The Ministry of Finance controls all aspects of the
government's budget and finance, including banks. The Central
Bank issues currency, regulates the money supply, sets official
foreign exchange rates, deals with the purchase and sale of gold
and foreign exchange, and handles foreign loans. The Foreign
Trade Bank, under the supervision of the Central Bank, handles
transactions and letters of credit related to foreign trade, and
controls the foreign exchange payments of foreign trade
organizations and other enterprises. The K mgang Bank is a
specialized bank that handles transactions of foreign trade
organizations dealing with exports and imports of machinery,
metals, mineral products, and chemical products. The Daesng Bank
handles transactions of the Daesng Trading Company and other
trading organizations. There are also three joint venture banks.
The state budget is a major government instrument in carrying
out the country's economic goals. Expenditures represented about
three-quarters of GNP in the mid-1980s--the allocation of which
reflected the priorities assigned to different economic sectors.
Taxes were abolished in 1974 as "remnants of an antiquated
society." This action, however, was not expected to have any
significant effect on state revenue because the overwhelming
proportion of government funds--an average of 98.1 percent during
1961-70--was from turnover (sales) taxes, deductions from profits
paid by state enterprises, and various user fees on machinery and
equipment, irrigation facilities, television sets, and water.
In order to provide a certain degree of local autonomy as
well as to lessen the financial burden of the central government,
a "local budget system" was introduced in 1973. Under this
system, provincial authorities are responsible for the operating
costs of institutions and enterprises not under direct central
government control, such as schools, hospitals, shops, and local
consumer goods production. In return, they are expected to
organize as many profitable ventures as possible and to turn over
profits to the central government.
Around November of every year, the state budget for the
following calendar year is drafted, subject to revision around
March. Typically, total revenue exceeds expenditure by a small
margin, with the surplus carried over to the following year. The
largest share of state expenditures goes to the "people's
economy," which averaged 67.3 percent of total expenditures
between 1987 and 1990, followed in magnitude by "socio-cultural,"
"defense," and "administration."
Defense spending, as a share of total expenditures, has
increased significantly since the 1960s: from 3.7 percent in 1959
to 19 percent in 1960, and, after averaging 19.8 percent between
1961 and 1966, to 30.4 percent in 1967. After remaining around 30
percent until 1971, the defense share decreased abruptly to 17
percent in 1972, and continued to decline throughout the 1980s.
Officially, in both 1989 and 1990 the defense share remained at
12 percent, and for 1991 it was 12.3 percent with 11.6 percent
planned for 1992 (see
table 3, Appendix;
Role in National Life
,
ch. 5). The declining trend is consistent with the government's
announced intentions to stimulate economic development and
increase the social benefits. However, Western experts estimate
that actual military expenditures are higher than budget figures
indicate.
Data as of June 1993
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