Water Bankruptcy: A Paradox in the Blue Planet

Prepared by Ian Lim

29 September 2026

The Earth’s surface is Full of water, but we’re Running Out of Water

Fact #1: Roughly 71% of Earth’s surface is covered in water.

Fact #2: We’re entering an era of water bankruptcy, according to the United Nations (UN).

Wait, what? How can this be?

Ok, to say that we’re running out of water is a bit of a stretch. Yet humanity is currently consuming and polluting water usable by humans, which makes up only about 0.3% of Earth’s water, at a rate that exceeds safe depletion limits and outpaces the environment’s ability to replenish it. When situations like these arise, human water systems are disrupted, causing periodic water stress or crises that may not recover. That said, this insolvency only makes up part of the criteria that constitute water bankruptcy.

When prolonged insolvency begins to cause irreversible damage to our water capital, requiring disproportionate social, economic, and environmental costs to restore it, water bankruptcy occurs as the scenario fulfils the second criterion, irreversibility.

Currently, three-fourths of the world’s population is living in countries labelled as water-insecure or critically water-insecure. At the same time, around 4 billion people endure severe water scarcity for at least a month per year. Additionally, many basins, lakes, rivers, and wetlands have shrunk or dried up to the extent that consecutive wet years cannot restore their lost functions within any reasonable human time frame, as they experience insolvency and irreversibility.

In short, water bankruptcy refers to the overuse of water resources (insolvency) to the extent that they become irreparable (irreversibility) from their historic levels.

But how did this term come to be? And why do we need to use the word “bankruptcy” when terms such as “crisis” and “scarcity” already exist to describe human-water systems?

The term water bankruptcy comes as many regions in the world enter a post-crisis state, where water crises such as droughts are no longer acute but have become chronic and anticipated. In his journal article, Kaveh Madani argues that this new term is also necessary to describe the severity of the situation, as the term “water crisis” is overused and no longer serves its psychological purpose of urgency, especially since the word “crisis” has an implied connotation of temporality and reversibility.

Additionally, Madani uses the term “bankruptcy” as he compares the concept to a bank account to explain clearly how water bankruptcy operates; with surface water systems acting as a checking account that is renewed by nature each year, while groundwater acts as a savings account.

Water Bankruptcy through the Lens of Inequality

Water bodies experiencing water bankruptcy are unable to return to their historical “normal”, as humans consume usable water more than we can replenish them, resulting in acute-turned-chronic scenarios such as periodic droughts, water shortages, and pollution. This could in turn affect food supply chains, access to clean water, people’s livelihoods, their health, and even regional and global geopolitical stability. However, the intensity of its effects is felt differently across certain groups. For example, farmers who rely on agricultural harvests for their livelihoods may find it difficult to access clean, fresh water for their crops, especially in over-consumed, water-stressed areas, resorting them to saline water to meet their water needs, thus reducing crop yields and their income.

Another example of how water bankruptcy intersects with inequality can be seen through cities such as Jakarta, where uneven urbanisation and extensive groundwater extraction have caused land subsidence. Jakarta is currently sinking at an average rate of 35mm per year, yet beneficiaries of urban expansion are less vulnerable to the effects of land subsidence. Meanwhile, local communities in the northern part of the city experience land subsidence more severely than the rest of the city, as they’re more exposed to overflowing rivers, torrential rains and encroaching seawater. It doesn’t help that many Jakartans still rely on groundwater, as the city-owned piped operator’s water infrastructure is insufficient. The outcome is that this worsens land subsidence and deepens inequalities due to water bankruptcy. In short, though water bankruptcy affects all humans, its effects are experienced differently, with stakeholders such as smallholder farmers and low-income urban residents being the most vulnerable.

Water Bankruptcy in the Context of Malaysia

This then begs the question: Is Malaysia entering an era of water bankruptcy as well?

Not according to our Deputy Prime Minister and Minister of Energy Transition and Water Transformation (PETRA), Datuk Seri Fadillah Yusof, as we receive more than 2 500 mm of annual rainfall. That said, we as Malaysians should be cautious, as rainfall abundance can be misleading. In fact, Malaysia has a water management issue as the non-revenue water (NRW) rate is at around 34.3%, meaning one-third of treated water produced is lost before reaching consumers, with states such as Perlis, Kelantan, and Kedah recording NRW rates as high as 61.5%, 53.7%, and 51.1%, respectively. If such an issue is not addressed promptly, Malaysia risks further stressing our human-water systems by withdrawing more water from our groundwater than it can replenish itself to meet current and future demands.

Additionally, several Malaysian states, such as Selangor, Malacca, Perlis, and Kedah, are also at risk of water disruptions should an acute demand or supply shock occur. This can be seen through the reserve margins of these states, as they are below the recommended margin of 15% to ensure operational stability.

In short, though Malaysia may not be experiencing water bankruptcy, we are still at risk due to human mismanagement despite receiving heavy rainfall, especially if the situation does not improve.

The Way Forward

However, not all hope is lost, as Malaysia still can improve access to reliable, clean water as long as the system stressors are addressed, such as our NRW rate and also our reserve margins.

Measures such as replacing ageing water infrastructure, e.g. replacing water meters and ageing pipes, can increase water consumption accuracy, improve water supply efficiency, and reduce the NRW rate. Next, to increase reserve margins in at-risk Malaysian states, more water treatment plants can be built. As a matter of fact, Selangor was able to increase its reserve margins from 15.34% in 2023 to 18.6% in 2024 as a result of newly built water treatment plants. Additionally, the water quality of our raw-water resources should be monitored through measures such as a database system for chemical movement tracking and prevention of illegal dumping. On an individual level, Malaysians need to reduce our water usage to reduce water demand and alleviate our water system. In fact, a Malaysian’s daily water consumption amounts to around 225 litres, which is way above the 165 litres sustainable target set by the World Health Organisation (WHO).

All measures mentioned above require the active participation of all layers of society, be it governmental agencies and individuals alike. That said, government agencies and departments need to take a proactive approach in addressing national water security and not work in silo before the situation worsens and results in water bankruptcy. Should Malaysian society take a concerted effort in addressing national water security, the future of the country will be secured too. References 1. Water Science School. (2019, November 13). How Much Water is There on Earth? USGS. https://www.usgs.gov/water-science-school/science/how-much-water-there-earth 2. World enters era of “global water bankruptcy.” (2026, January 20). UN News. https://news.un.org/en/story/2026/01/1166800 3. Madani, K. (2026). Water Bankruptcy: The Formal Definition. Water Resources Management, 40, 1. https://doi.org/10.1007/s11269-025-04484-0 4. Madani K. (2026) Global Water Bankruptcy: Living Beyond Our Hydrological Means in the Post-Crisis Era, United Nations University Institute for Water, Environment and Health (UNU-INWEH), Richmond Hill, Ontario, Canada, doi: 10.53328/INR26KAM001 5. Global Water Bankruptcy. (2026, January 20). United Nations Uiversity. https://unu.edu/inweh/collection/global-water-bankruptcy 6. Jakarta sinks deeper as subsidence worsens flood risks. (2026b). In The Straits Times. https://www.straitstimes.com/asia/se-asia/jakarta-sinks-deeper-as-subsidence-worsens-flood-risks 7. The Star Online. (2026, March 24). Malaysia not at risk of water bankruptcy, says Fadillah. The Star. https://www.thestar.com.my/news/nation/2026/03/24/malaysia-not-at-risk-of-water-bankruptcy-says-fadillah 8. Bernama. (2026, March 22). Water bankruptcy is coming,can are we prepared? NST Online; New Straits Times. https://www.nst.com.my/business/feature/2026/03/1401682/water-bankruptcy-coming-are-we-prepared 9. Non-revenue water refers to treated water that is produced but lost before it reaches users. 10. Abdullah, S. M. (2026, June 11). Kelantan’s water losses remain among nation’s highest, says PAAB. NST Online; New Straits Times.https://www.nst.com.my/news/regional/2026/06/1460787/kelantans-water-losses-remain-among-nations-highest-says-paab?source=widget 11. Air Selangor Delivers Commendable Results in 2024, Strengthening its Commitment to Sustainable Water Management for the Future. (2025, August 12). https://hydrohub.airselangor.com/publication/air-selangor-delivers-commendable-results-in-2024-strengthening-its-commitment-to-sustainable-water-management-for-the-future/