AFTER months of talks, markets are expecting an announcement soon about the resolution of Ukraine's debt crisis. On August 24th news leaked that Ukraine and its creditors had agreed to a 20% haircut on $19 billion-worth of debt (the rumours have not been confirmed). If true, is this good news for Ukraine? For months, Ukraine’s creditors, which include Franklin Templeton, a global investment firm that owns about $9 billion of the country’s bonds, and BTG Pactual, a Brazilian rival, refused to consider writing off any Ukrainian debt. More recently, traders have reckoned that a 10-15% haircut was most likely. So to get to 20% looks like a win for the Ukrainians.

However, in a crucial way Ukraine could lose out. As part of a four-year, $17.5 billion bail-out agreed to in March, the IMF set out three important conditions. In return for the money, it assumes that: first, Ukraine will reduce debt repayments in any given year to no more than 10% of GDP by 2019-25; second, that the government in Kiev will write off $15.3 billion in debt and interest by 2018; and third, that it will have reduced its public-debt-to-GDP ratio to about 70% of GDP by 2020.

The big question is whether the mooted 20% haircut deal allows Ukraine to achieve those conditions. The timetable for the first requirement—reducing debt by 2025—is long and Ukraine’s present economic and political situation is highly unstable. As for the other two demands, if 20% of the $19 billion in Ukraine's debt is indeed written off it would reduce the country's total public and publicly guaranteed debt burden from $70 billion to about $66 billion. With a raft of maturity extensions and coupon reductions, proposals that the creditors have entertained, Ukraine may well save $15.3 billion by 2018.

Meeting the third stipulation, lowering the debt-to-GDP ratio to 70% by 2020, will be much trickier. Ukraine’s GDP is roughly $70-80 billion, and falling. Cutting 6% off Ukraine’s total debt burden, which is what the proposed debt deal amounts to, is insufficient in that regard. The only way of meeting it, says Timothy Ash of Nomura, a bank, would be if the Ukrainian hryvnia underwent a massive appreciation. That is “finger-in-the-air stuff from the IMF”, reckons Mr Ash.

The important thing to watch out for when a deal is announced is how the IMF responds. It is supposed to provide Ukraine with another $10 billion or so during the remaining three-and-a-half years of its bail-out programme. If Ukraine fails to meet its conditions, will the IMF continue to fund it?