Pakistan is currently facing severe shortage of irrigation water. Current study is based on comprehensive cross sectional data set collected from 950 farmers from all the four major provinces of Pakistan. The paper analyzes the determinants of water scarcity and its impact on cereal crops yield (wheat, maize and rice), household income, food security and poverty levels by employing the propensity score matching approach. The empirical analysis indicated that farmers with water scarcity problem have lower yield (wheat, maize and rice) and household income and are food insecure. Poverty levels were higher in the range of 7-12% for the household facing water scarcity problem. Policy implications of the study is that public and private sector in Pakistan needs to invest in irrigation water management to maintain the productivity of cereal crops which is important for household food security and poverty reduction.