Rational allocation of water resources is very essential to cope with water scarcity. The optimal allocation of limited water resources is required for various purposes to achieve sustainable development. The Awash River Basin is currently faced with a scarcity of water due to increasing demands, urbanization, irrigation expansion, and variability of climates. The excessive abstraction of water resources in the basin without proper assessing of the available water resources contributed to water scarcity. This paper aimed to develop a water evaluation and planning (WEAP) model to allocate the water supplies to demanding sectors based on an economic parameter to maximize the economic benefits. The water demands, water shortages, and supply alternatives were analyzed under different scenarios. Three scenarios were developed, namely reference (1981–2016), medium-term development (2017–2030), and long-term development (2031–2050) future scenarios with the baseline period (1980). The results of this study showed that the total quantity of water needed to meet the irrigation demands of all the stations was 306.96 MCM from 1980 to 2016. Seasonally, March, April, May, and June require the maximum irrigation water demand. However, July, August, and September require minimum demand for water because of the rainy season. The seasonal unmet demand is observed in all months, which ranged from 6 × 106 m3 to 35.9 × 106 m3 in August and May respectively. The trend of streamflow in Melka Kuntre was a statistically significant increasing trend after 2008 (Z = 5.33) whereas the trends in other gauge stations showed a relatively decreasing trend. The results also showed that future water consumption would greatly increase in the Awash River Basin. The prevention of future water shortages requires the implementation of water-saving measures and the use of new water supply technologies. The findings of this study will serve as a reference for water resources managers and policy and decision makers.