Economists, traditionally, view that public sector deficits have positive effects on economic growth and development. Since 1975-2004, the Philippine Government has pursued for the most part a prolonged budget deficit policy that the National Economic Development Authority has reiterated in 1993. However, the current view is that persistent deficits lead to macroeconomic imbalances of high interest rates, crowding-out private investments and higher inflation which have devastating effects to the economy. Thus an examination of these conflicting views is necessary especially for the private sector through the determination of the impact of the accumulated public sector deficits on the aforementioned variables. The study undertakes the descriptive design using direct comparative data and correlation analysis and a time-series analysis. It will determine the sources of changes of the interest rates based on weighted-average of all treasury bills against the inflation rates based on the Consumer Price Index.