A Primary Healthcare-System-Strengthening Project (PSSP) is implemented by the Ministry of Health, Sri Lanka, with funding support from the World Bank for providing quality care through primary medical care institutions (PMCIs). We used an explanatory mixed-methods study to assess progress and challenges in human resources, drug availability, laboratory services and the health management information system (HMIS) at PMCIs. We conducted a checklist-based assessment followed by in-depth interviews of healthcare workers in one PMCI each in all nine provinces. All PMCIs had medical/nursing officers, but data entry operators (44%) and laboratory technicians (33%) were mostly not available. Existing staff were assigned additional responsibilities in PSSP, decreasing their motivation and efficiency. While 11/18 (61%) essential drugs were available in all PMCIs, buffer stocks were not maintained in >50% due to poor supply chain management and storage infrastructure. Only 6/14 (43%) essential laboratory investigations were available in >50% of PMCIs, non-availability was due to shortages of reagents/consumables and lack of sample collection–transportation system. The HMIS was installed in PMCIs but its usage was sub-optimal due to perceived lack of utility, few trained operators and poor internet connectivity. The PSSP needs to address these bottlenecks as a priority to ensure sustainability and successful scale-up.