It is generally recognised that fresh water is regarded as one of the most important natural resources for all socio-economic development and a basic input for environmental management. Failure to successfully develop and appropriately utilise this resource leads to a progressively declining economy and degraded environment.

In Ethiopia, despite the huge potential of fresh water resources, recurrent droughts and rapidly progressing desertification have disrupted food and fibre production systems. Food shortage and starvation is ever increasing. The national economy is either stagnant or declining while population size is rapidly increasing. Domestic water supply is at its infancy. Potentials in irrigation and hydropower are also hardly exploited. The cumulative effect of these has reflected on overall poverty and associated environmental degradation.

In view of the above-mentioned issues, the need to develop and utilise the available water resource in the country is discussed in this paper. The discussion is focused on the relationship between water resources, the environment and poverty.