When determining which predicting technique to use, analysts look for forecasting method that minimizes forecast errors. Fuzzy logic turns to be one of a new ways for predicting movements of different factors in the economies. It is designed to solve problems in the same way that humans do: by considering all available information and making the best possible decision given the input. It assumes that we have advanced knowledge about entities and movements we are trying to predict. Data used in this study are explained in Section 2. The same section gives detailed explanations concerning input data selection criteria and data transformation process. Section 3 presents the proposed fuzzy logic model with detailed specification of inputs, outputs, fuzzy rules and overall model structure. The results of the proposed model are presented in Section 4. Finally, Section 5 concludes the paper, 2. DATA In this study dataset of fourteen countries are taken into account. These counties are mainly chosen by the criteria of the frequent sovereign credit rating grade changes over time. These grades are published by some leading rating agencies like Moody's, Standard and Poor's, Fitch and other. Each of them use their own model based on public and non-public data to determine agency's opinion on government creditworthiness. The analyzed countries are: Argentina, Brazil, Dominican Republic, Estonia, Greece, Hungary, South Korea, Romania, Russia, Slovakia, Slovenia, Turkey, Uruguay Venezuela. Data sets cover the period from 1996 to 2013 2.1. History of credit rating grades Historical credit rating time series used in this paper are published by Fitch rating agency. According to qualitative ordinal scale that Fitch publishes (Fitch Inc, 2011): "AAA ratings denote the lowest expectation of credit risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. "AA" ratings denote expectations of very low credit risk, etc. These ratings are followed by sovereign categories which are considered to be increasingly riskier to invest in Rating category "D* indicates that a country is in a state of default These series of data contain rating of sovereign debt in chronological order. However, they need to be slightly modified to suit to the country-year data format convenient for further manipulation. For targeted countries that for single year have more than one credit rating grade, provided by Fitch as an opinion on risk of loss due to credit risk, arithmetic mean rounded by fewer is taken as a grade for the observed year. What is meant here by the credit rating mean? If we assume that each credit rating category can be expressed as a unique integer value instead of a combination of letters, then we can introduce a presumption that the average value of this rank ordered values assigned to letters can be a suitable estimation of credit rating grade. Missing observations of country's rating for some years are handled in such manner that the average value of the credit rating grade between two observations we are familiar with is assumed for observed year. 2.2. Transition matrix Since Fitch sovereign rating history is used for obtaining necessary data about historical rating grade changes, therefore Fitch's transition matrix is selected as a next very important input parameter further in this process. Transition matrix consists of migration probabilities from one to another credit rating category over the given horizon. It also reflects different trends in the credit quality change across the major credit categories. For the purpose of this study, Fitch's one-year transition matrix is used, with the intention to these migrations match the one-year interval of already mentioned historical rating observations 2.3. Country indicators In order to explain the variability of sovereign credit rating some basic financial, health, economy and growth country indicators are taken into account. All of the indicators are mostly official-source data from the World Bank. They were selected in such order that in some way can affect and be related to the country's credit rating grade. In this model are included following indicators Unemployment rate refers to percent of the total labor force that is unemployed. It represents the share of the labor force that is without work but available for and seeking employment. It is assumed that this rate is inverse to credit rating grade. Gross Domestic Product Growth (GDP growth) represents the annual percentage growth rate of gross domestic product at market prices based on constant local currency. Here, we suppose that the growth of GDP will raise observed country's ability to meet its obligations Central Government Debt expressed as percentage of GDP. Debt is the entire stock of direct government fixed-term contractual obligations to others outstanding on a particular date. It includes domestic and foreign liabilities such as currency and money deposits, securities other than shares, and loans. It is the gross amount of government liabilities reduced by the amount of equity and financial derivatives held by the government. (World Bank Source, 2013) The bigger the debt in percents of GDP the country's financial situation is considered to be worse 22 Under-five mortality rate is the probability per 1,000 that a newbom baby will die before reaching age five, if subject to current age-specific mortality rates. Estimates developed by the UN Inter-agency Group for Child Mortality Estimation (World Bank Source, 2013) it is believed that countries with lower mortality rates of children and thus probably more developed health system will have healthier economy as well Lending Interest Rate is the bank rate that usually meets the short- and medium-term financing needs of the private sector. This rate is normally differentiated according to creditworthiness of borrowers and objectives of financing. (World Bank Source, 2013) Higher interest rates compensate higher risk of losing money and these high risks are associated with uncertainty of the country's overall economic situation and its creditworthiness Inflation is measured by the consumer price index reflects the annual percentage change in the cost to the average consumer of acquiring a basket of goods and services that may be fored or changed at specified intervals, such as yearly. The Laspeyres formula is generally used. (World Bank Source, 2013) High inflation may signal country's inability to settle its obligations without inserting the new banknotes into the system