Improving access to and quality of water supply and sanitation (WSS) services is emerging as a key objective in poverty alleviation. The importance of access to improved water supply and sanitation has been even more pronounced since it was declared a target of the Millennium Development Goals (MDGs) in 2000. The achievement of the MDGs will require a large investment program that will help increase access to safe and sustainable water and sanitation services. The majority of the funds for the sector are still provided for by the government at central, provincial or local levels. Although additional resources may be urgently needed, research in other social sectors (health and education) has also shown that higher public expenditures do not necessarily result in better social outcomes. Gaps in achieving outcomes can be due to: a) sub-optimal spending, due to inefficient allocation of resources, discretionary reallocation of resources, inappropriate policies and institutional incentives, or poor targeting of resources; b) low quality of service delivery due to inefficiencies in service delivery; and c) lack of demand from certain segments of the population. A lot of effort has been dedicated to increasing resources to achieve the MDGs, but the size of the required investments can be substantially reduced if the efficacy, efficiency, and quality of public expenditures in the water and sanitation (WSS) sector can be increased. Looking into the efficiency of public expenditure programs in the WSS sector is complicated. More so than in other social sectors (health and education), the WSS sector is characterized by highly decentralized service delivery that makes data collection more challenging.