Sri Lanka ruled out an IMF bailout on Wednesday and planned more loans, including from China, to address its worsening economic crisis -- but was swiftly hit with another international ratings downgrade.

Within hours of Colombo announcing it was in talks with Beijing for a large loan from China, the largest bilateral lender to the island, S&P Global downgraded Sri Lanka by one more notch to CCC from CCC+.

The island's tourism-dependent economy has been battered by the pandemic, with supermarkets rationing goods and rolling blackouts imposed by power utilities unable to fund oil imports.

S and P Global said the downgrade reflected the deterioration of Sri Lanka's ability to maintain foreign reserves and the higher risk of a sovereign default.

"Timely debt service will likely become increasingly difficult over the next 12 months, given Sri Lanka's vulnerable external profile, sizable fiscal deficits, heavy government indebtedness, and hefty interest payments," S and P said in a statement.

Other international rating agencies too have warned of a looming sovereign default on Sri Lanka's $35 billion foreign debt as the treasury battles a crunch on foreign exchange reserves.

But central bank governor Ajith Nivard Cabraal rejected mounting calls from local and international economists to seek an International Monetary Fund bailout and debt restructure.

"The IMF is not a magic wand," he told a news conference in Colombo. "At this point, the other alternatives are better than going to the IMF."

Cabraal added that talks with China over a new loan were at an "advanced stage", and a fresh agreement would service existing debt to Beijing.

"They would assist us in making the repayments... the new loan coming from China is in order to cushion our debt repayments to China itself," he said.

Beijing is already the island's biggest bilateral lender, accounting for at least 10 percent of Sri Lanka's external debt without taking into account loans given to Sri Lankan state enterprises.

Cabraal's remarks come days after a visit from Chinese Foreign Minister Wang Yi who discussed a debt payment restructure with President Gotabaya Rajapaksa.

Sri Lanka has borrowed heavily from China for infrastructure in the past, some of which ended up as white elephants.

Unable to repay a $1.4 billion loan for a port construction in the south, Sri Lanka was forced to lease out the facility to a Chinese company for 99 years in 2017.

The United States and India have warned that the Hambantota port, located along vital east-west international shipping routes, could give China a military toehold in the Indian Ocean.

Cabraal did not give an indication of the size of the loan sought from China, but said talks were also underway with India for a $1 billion credit line to fund a broad range of imports.

He also said Colombo will repay a $500 million sovereign bond that matures next Tuesday despite local business leaders publicly asking him to withhold the repayment and seek IMF help.

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