Can North Korea turn its new wealth into sustainable growth?

North Korea’s recent economic growth is real, but built on Russian cash, Chinese trade and illicit activity.

A June 2026 Wall Street Journal article described North Korea as “the world’s most surprising economic success story” – a claim many would instinctively dismiss, yet one that warrants closer examination. The debate has gained enough traction that the Center for Strategic and International Studies (CSIS) recently devoted an entire podcast episode to whether North Korea’s economy has undergone a meaningful transformation.

The WSJ draws on the observations of foreign visitors who entered the country after borders reopened post-Covid. They described a Pyongyang far more modern than expected: ride-hailing apps, QR code payments in restaurants, electric vehicles, pet stores, widespread smartphone use, and new high-rise developments. This picture contrasts sharply with the country’s long-standing image as one of the world’s poorest and most isolated states.

As the article’s author noted in the CSIS podcast, Kim Jong-un “wants to show the world that [North Korea] it is not the poor, destitute nation that probably many countries think they are.”

Analysts broadly agree that North Korea’s economy has improved since the pandemic, driven largely by external foreign currency, particularly troop deployments and arms exports to Russia reportedly collectively worth more than US$14 billion, continued trade with China, and illicit cyber activities, including cryptocurrency theft. South Korea’s central bank estimates the economy grew by 3.7% in 2024, its strongest performance in eight years.

The more important question is not whether North Korea has become wealthier but what that wealth represents. Much of its recent income depends on external relationships and exceptional geopolitical circumstances rather than sustained domestic productivity, and much of it is likely being redirected towards military modernisation.

All of which leaves the question: is Pyongyang merely benefiting from a temporary windfall, or building a more resilient economy capable of withstanding future shocks?

The answer may determine whether North Korea’s recent economic gains prove durable. Kim has long promoted a “self-reliant” economy, yet the country’s current recovery remains heavily dependent on Russia, China, and illicit revenue. Rather than contradictory, these developments may be different stages of the same strategy. External income can provide the capital needed to strengthen domestic industries, improve infrastructure, and reduce future vulnerabilities. If managed effectively, today’s dependence on foreign earnings could gradually finance greater economic resilience at home.

There are already signs Pyongyang may be pursuing such an approach. In January 2024, Kim announced a policy, aimed at modernising and building new factories and improving living standards across rural counties that have historically lagged behind Pyongyang. Coming months after North Korea’s enhanced military partnership with Russia, Kim may have seen an opportunity to channel some of that revenue into domestic investment, not just military modernisation.

Similar efforts to improve healthcare, education, housing, transport, and agriculture would further strengthen the regime’s long-term economic foundations. If revenues from arms exports and cyber operations are systematically channelled into such sectors, North Korea could gradually build buffers against future disruptions – whether from changes in Chinese trade, declining Russian demand, or renewed international pressure.

Economic improvements concentrated in Pyongyang risk widening disparities with provincial regions, potentially fueling public dissatisfaction over time. Extending development projects to rural areas could improve living conditions while reinforcing regime legitimacy.

Another challenge lies in managing the informal economy. Black markets and cross-border smuggling have long provided livelihoods for ordinary North Koreans, particularly during hardship. While the authorities have oscillated their approach between tolerance and harsh crackdowns, maintaining this balance may become increasingly difficult as living standards improve. As public expectations rise, informal markets that once served as a survival mechanism may evolve into demands for broader commercial freedoms that are harder for the state to control.

Looking ahead, North Korea’s defence industry could become another important source of long-term growth. The war in Ukraine has demonstrated that Pyongyang possesses a sizeable stockpile of military equipment attractive to countries facing conflict or unable to buy from traditional suppliers. If sanctions enforcement remains weak, North Korea may expand beyond Russia to become a more regular arms exporter, diversifying its foreign currency earnings.

These trends present a growing policy dilemma for the United States and its allies. A more economically resilient North Korea is likely to feel less pressure to negotiate and may possess greater resources to sustain both its nuclear program and conventional military modernisation.

Yet tightening sanctions alone is unlikely to reverse these gains. Existing sanctions have done little to prevent expanding military and economic cooperation between North Korea and Russia, while Pyongyang has become increasingly adept at generating revenue through illicit channels.

Instead, future negotiations should recognise that sanctions relief and non-proliferation objectives can reinforce rather than undermine one another. Gradually expanding North Korea’s opportunities for legitimate trade, while maintaining clear penalties for weapons proliferation and illicit arms transfers, would provide stronger incentives to shift economic activity away from illegal revenue streams. Such an approach would not solve the North Korean challenge overnight, but it may offer a more realistic path than a sanctions strategy whose effectiveness has steadily eroded.

This article was originally published by the Interpreter here, and syndicated by Channel News Asia here.