Why might drinking water quality be a strong indicator of the level of corruption in a country?
There are two reasons for this.
First, drinking water quality is an objective measure. It does not depend on people's perceptions. Perceptions can be culturally skewed, making that sort of measure less reliable. Water quality is not liable to this problem.
Second, official corruption can help lead to lower water quality. Officials might be paid off to look the other way as contractors lay inferior pipe systems or create substandard water treatment plants. Officials might siphon off for themselves funds that are meant to buy chemicals to treat the water or funds that are meant to pay workers to maintain the water system. Workers might be hired to work in water treatment plants because they are related to someone powerful or because they paid a bribe. Such workers might not show up at all or might not do their jobs when they do show up. All of these sorts of corruption could lead to lower water quality.
Drinking water quality, then, is something that is objectively measurable and can be degraded by corrupt practices. This makes is a strong indicator of the level of corruption in a country.