Despite a substantial decline in poverty, an increase in access to water and sanitation and a large decline in open defecation, diarrhea and stunting rates in Pakistan show few signs of a decline. This report provides evidence that the policy focus on eliminating open defecation rather than the safe management of fecal waste has been largely responsible for this. Water tests reveal shockingly high rates of E. coli contamination in both surface and ground water. To make matters worse, few households practice water treatment and untreated waste water is routinely mixed with surface and ground water for use in crop irrigation. This multiplies the channels through which the oral transmission of fecal bacteria can occur and creates strong downstream effects through food supplies headed to urban centers. Unsurprisingly, rates of diarrhea have remained stubbornly high even among the wealthiest households in metropolitan cities like Karachi. While the impact of of E. coli on diarrhea is well known, new research is showing the far more damaging impact of environmental enteropathy, a process by which fecal pathogens like E. coli can permanently damage the intestinal villi of young children making it difficult to absorb nutrients, even during periods when the child shows no signs of diarrhea. The report urges urgent action on safe sanitation and the treatment of water to combat this health crisis.