The British Council faces cutting its workforce further and closing operations in 11 countries as it struggles to repay a crippling £197m Covid-era government loan that threatens its survival, the public spending watchdog has said.

The UK’s soft-power agency remains loss-making six years on from the pandemic and is not expected to make a profit until 2029-30, a report from the National Audit Office says.

Repayment of the 2020 loan from the Foreign, Commonwealth and Development Office (FCDO), originally £60m plus market-value interest and now standing at £197m, is due in September 2027.

The agency, which has promoted English-language teaching and UK culture abroad for almost a century, has not paid back any capital since 2024 but has paid £42m in interest and expects to pay another £53m in interest by 2029-30. It has incurred net losses of £184m since the pandemic.

The FCDO and the agency are now said to be in the final stages of negotiations to come to agreement on how the loan can be repaid, with the focus said to be on agreeing to pay back within 15 years, the report says.

A turnaround plan put forward by the agency would involve further staff reductions of about 15%, or roughly 1,180 of its 7,880-strong global workforce, by 2029-30 through redundancies, non-renewal of contracts and natural wastage, it is understood.

This is in addition to the 2,110 jobs already lost since 2021. Operations would close in 11 countries and be pared back in 15 others, the report says. The agency would not confirm details.

The NAO said the current plan would require ministerial approval.

Staff cuts and the sale of assets abroad have led to recent protests by agency staff across Europe, in particular in Spain and Italy, as well as letters of no confidence in the British Council management.

The British Council had offered to pay off the loan through swaps for its art collection, which includes works by LS Lowry, Francis Bacon, Tracey Emin and David Hockney, which was rejected. It has also called for the debt to be written off, a move rejected by the FCDO and Treasury on the basis of compliance with the UK Subsidy Control Act 2022, the report says.

Gareth Davies, the head of the NAO, said any agreement needed to provide clarity to parliament on the financial future of the agency and the eventual settlement of the loan.

Geoffrey Clifton-Brown, the chair of the public accounts committee, described the agency’s financial position as “deeply concerning and untenable”.

He said: “It is not sustainable for the FCDO and the British Council to continuously extend the loan year after year, rather than agree on a lasting solution; they must do so as soon as possible to ensure that the British Council is viable for the long term.”

A spokesperson for the British Council said it welcomed the report, “which clearly sets out the challenges we have faced since our operations around the world were hit hard by the Covid-19 pandemic”.

The spokesperson said: “We are taking all necessary steps to significantly cut costs and grow our revenue, ensuring that the British Council is modern, efficient and able to adapt to changing economic conditions.

“Alongside this, we continue to work with the FCDO to resolve the key issue of our £197m government loan, which was awarded on commercial terms, with interest at market rates. We look forward to agreeing a solution to the loan, enabling us to continue with our mission to support peace and prosperity for the people of the UK and millions of people across the globe.”

The FCDO was approached for comment.